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Free Trade Agreements: Is There a Trade Lane Left Without One?

trade

Free Trade Agreements: Is There a Trade Lane Left Without One?

Since the first Free Trade Agreement (FTA) in 1860, a lot has happened. A solid 160 years will do that for you. On the FTA front specifically, the focus has also shifted: what used to be an opportunity for significant duty reduction and, therefore, a more competitive position in the FTA partner’s home market has turned into a tool for faster access to the market and control of a trading relationship. With the applied, weighted, mean duty rates globally down to 2.59% from 8.57% in 1994 (Source: macrotrends.net based on World Trade Organization (WTO) data), the importance of duty rate reduction has been marginalized—so why is there still such a strong movement towards adding more FTAs to an already considerable total worldwide?

Some Recent Developments

Trade agreements are not only about duty rates anymore; the collaboration and facilitation part is just as, if not more, important. That means trading partners make efforts to reduce the paperwork on the trade lane, give priority to incoming shipments, and collaborate on data exchange and simplification of procedures. In today’s economies, these elements are just as crucial as a few duty points. In addition to the facilitation, environmental clauses are included in new FTAs. Got to start somewhere. Customs unions (like the EU) take it one step further—they usually allow for goods to move freely between member states and have a single common tariff for the outside world.

In a similar fashion, the FTA accounts for financial and administrative arrangements that are not limited to duty rates and import documents. In a broader scope, abolishing of export subsidies, transparency with added value calculations, investigative cooperations, etc. are part of the package and simplify the use and verification of FTA claims.

Perhaps not a trend (yet?), but the Pan-Euro-Mediterranean is loosening its Rules of Origin (likely in effect in 2021). Rules of Origin set forth the requirements that need to be met to benefit from FTA arrangements (i.e., qualify for preferential treatment). Typically, Rules of Origin encompass a required tariff shift (i.e., a substantial transformation needs to take place) and/or a value-added component (i.e., the value add of locally sourced parts, materials, labor, etc. needs to exceed a specific threshold). The value-added thresholds have historically been relatively high (60% and up) and loosening those requirements will simply allow more products to qualify, which will give developing countries especially more opportunities to qualify their exports for preferential treatment.

Per the WTO, over 300 Regional Trade Agreements (RTA) are currently in force. This number only reflects agreements that include preferential duty rate schemes, as agreements such as bilateral investment treaties or Joint Commissions would increase this number two- or three-fold. The RTA number includes bilateral/local agreements as well as ‘monster trade pacts’ such as the EU, USMCA or ASEAN – China agreements. It has been a steady growth of FTAs since the 1990s, with a peak in the action between 2003 and 2011. And (see below) there is no end in sight.

What’s Next?

Go big or go home is what the EU is thinking. Agreements are in place with around 40 countries, ratification in progress for agreements with around 30 countries, and agreements with another 20 countries are waiting to be signed. For any countries left behind, it seems that there are ongoing negotiations (e.g., Australia, New Zealand) or plans to negotiate. Don’t despair.

Never-ending speculation on a Trans Atlantic agreement (US – EU) or a Trans-Pacific Partnership (TPP) including the US will not be put to rest until actually completed and in force (the US withdrew from the TPP in 2017). The US currently has 14 FTAs with 20 countries, re-did the USMCA in 2020, and negotiations with Kenya and Taiwan seem to be in the works.

Lastly, with Brexit in its final stages, the UK is also breaking off FTA relationships with EU partners. That means the UK will have to create separate FTAs with these countries. Practically, not all of the EU FTAs will have a UK equivalent by January 1, 2021, and some may never be in place. This means regular (Most Favored Nations – MFN) rates will apply come January 1 unless another preferential program (like the Generalized System of Preferences) applies. But with the UK exit comes an opportunity for Britain to conclude agreements the EU has not been able to pull off. Perhaps a US – UK FTA is nearer than thought. Let’s check the odds on that!

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Anne van de Heetkamp is VP of Product Management and Global Trade Content at Descartes and is an international trade expert with 20+ years of industry experience. Previously he served as Director for global trade compliance/management company, TradeBeam.

corruption

TACKLING CORRUPTION IN THE TRADING SYSTEM THROUGH A CULTURE OF INTEGRITY

No Disagreement Here

For decades, economists have extolled the virtues of the rule of law as a critical factor in leveling the playing field through a framework of rules and regulations that are easy to understand and evenly, logically and fairly applied to all participants in an economic system. This central premise is reflected in the principle of “predictability through transparency,” one of three pillars of the World Trade Organization (WTO) and the global trading system. At the heart of this focus has been an emphasis on reducing the role that corruption can play in the administration of laws, function of government, conduct of business, and protection of citizen rights.

Back in an October 1996 address to the Board of Governors at the Annual Meetings of the World Bank and the International Monetary Fund, then World Bank President James Wolfensohn gave a groundbreaking speech in which he described corruption as a cancer and committed the Bank to strengthen its internal controls and supporting the international fight against corruption.

“…corruption diverts resources from the poor to the rich, increases the cost of running businesses, distorts public expenditures, and deters foreign investors…it erodes the constituency for aid programs and humanitarian relief.”

– James Wolfensohn, President of the World Bank, October 1996

The Heavy Toll of Corruption

Significant attention has been paid to the goal of reducing corruption, particularly for emerging economies. The World Economic Forum calculates the global cost of corruption is at least $2.6 trillion, or roughly 5 percent of global GDP. For emerging economies alone, the UN estimates that corruption costs these countries some $1.2 trillion annually through bribery, theft and tax evasion.

Cost of Corruption

It is also widely recognized that global corruption can undermine the benefits of agreements negotiated to introduce predictability and transparency into the trading system. Former WTO Director-General Pascal Lamy described corruption in the international trading system as tantamount to “a hidden increase of the cost of trade.” Within the UN Sustainable Development Goals, the global community identified the promotion of the rule of law as a key priority for development through Goal 16, which is dedicated to promote just, peaceful and inclusive societies, and to achieve this goal by 2030.

Given the consensus among stakeholders within the international trade community, the question is: how to effectively combat corruption to achieve our shared goals of rules and laws that are applied objectively, consistently and equitably to all?

Since the time of Wolfensohn’s catalyzing speech, governments, the business community, civil society and international institutions have rallied around global efforts to create initiatives and mechanisms to mitigate the scourge of corruption. Member states and international organizations drafted and signed anti-corruption conventions through the Organization for Economic Cooperation and Development (OECD) and the United Nations (UN), and established regional conventions and working groups in Africa, the Americas and Asia.

Corruption Agreements Table

A Comprehensive Approach to Dismantling Corruption

In spite of the proliferation of anti-corruption instruments in regional and international organizations, the issue of corruption persists as a challenge. Punitive measures only go so far in achieving anti-corruption aims. A more comprehensive approach to dismantling corruption centers on enhancing integrity and ethics in an effort to affect the cultural practices and norms that perpetuate corruption.

This change was reflected in the 2017 OECD Recommendation of the Council on Public Integrity that reframed the anti-corruption strategy to focus on promoting the essential societal pillar of integrity as a sustainable response to the global problem of corruption. The adoption of these recommendations was part of a deliberate shift to go beyond ad hoc efforts toward a more comprehensive and strategic approach to promoting integrity through systems, culture, and accountability.

Defining Public Integrity

The OECD defines the term public integrity as “a consistent alignment of, and adherence to, shared ethical values, principles and norms for upholding and prioritizing the public interest.” Consistent with describing public integrity as an aspirational goal (versus the punitive connotation of combatting corruption), this definition grounds the work of promoting integrity in global efforts to make government functions more effective, economies more accountable, and societies more inclusive by involving all stakeholders in the effort to improve governance and strengthen the rule of law.

In May, the OECD took the next step in publishing the OECD Public Integrity Handbook. The handbook details best practices, principles and concrete actions for promoting a culture of integrity in government functions with an emphasis on generating dialogue between business, government and civil society to promote greater stakeholder collaboration in upholding public integrity values. The report expands on the 13 public integrity recommendations articulated in 2017 and goes a step further by translating those principles into practical measures governments can implement to institute change.

The OECD describes the handbook as a roadmap to help governments identify what integrity looks like and why it is important to take a whole-of-society approach in building public trust. The handbook can thus be viewed as a toolkit that helps anti-corruption advocates undertake the hard work of creating the ‘right relationship’ between government, citizens, business, and civil society.

Public Integrity

Public Integrity is Important to Trade and Investment Flows

International organizations and governments are not the only institutions concerned about combatting corruption, creating a culture of integrity, and strengthening the rule of law.

These issues are equally significant for the private sector in an increasingly globalized world as they are determinant of the business environment. This is why trade agreements have been grounded in rule of law principles, and have incorporated transparency and anti-corruption components to instill investors with greater confidence they can compete and operate in global markets. As noted by The World Justice Project, “uneven enforcement of regulations, corruption, insecure property rights, and ineffective means to settle disputes undermine legitimate business and deter both domestic and foreign investment.”

Companies make trade and investment decisions based on where they have confidence in the integrity of public and private institutions and where there is fairness, enforcement and proper adjudication of the law. In a 2017 Business Pulse Survey conducted by the U.S. Chamber of Commerce and the Association of American Chambers of Commerce in Latin America and the Caribbean, 31 percent of respondents described the rule of law as the “most important” issue to address for business, while 45 percent of executives characterized strengthening the rule of law and fighting corruption as the most important issues to be addressed to enhance economic growth in the region.

Corruption Quote

It is this emphasis on promoting public integrity that underpinned the inclusion of an anti-corruption chapter in the United States-Mexico-Canada Agreement (USMCA) that entered into force on July 1, 2020, representing one of the first times governments have formally committed to combat bribery and corruption in a trade agreement. The private sector has also prioritized an anti-corruption component in the bilateral trade negotiations now underway between Brazil and the United States.

Given the private sector’s interest in eliminating corruption from global trade, the U.S. Chamber recently co-hosted a public forum with the OECD entitled “The Role of Public Integrity in Promoting the Rule of Law” to examine the importance of the public integrity movement for global commerce. Julio Bacio Terracino, Acting Head of the OECD’s Public Sector Integrity Division, joined government officials, senior executives and the U.S. Chamber for a dialogue to review the OECD recommendations, discuss practical considerations outlined in the new handbook, and examine how tools like this are helpful in creating trade and investment conditions that enable business success.

Public Integrity through the Private Sector Prism

There are a number of public-private interactions the OECD has flagged as vulnerable to corruption or solicitation of bribes, notably in customs clearance and trade facilitation, public procurement, licensing and permitting processes, and public infrastructure contracting. During the forum, executives highlighted the critical role that governments play in creating the conditions for trade and investment by leveling the playing field for all actors, creating certainty, operating transparently, upholding the sanctity of contracts, and enabling access to justice.

Through its Coalition for the Rule of Law in Global Markets, the U.S. Chamber defines the concept of the rule of law through the prism of the private sector by articulating the five factors that determine the ability of any business to make good investment and operating decisions. These elements are transparency, predictability, stability, accountability and due process — each of which requires adherence to the shared ethical values, principles and norms that define public integrity.

The whole-of-society focus of the OECD Public Integrity Handbook recognizes the private sector’s role as a co-creator of the rule of law and acknowledges that all facets of society must commit and contribute to building a culture of integrity. This approach aligns with the Coalition’s vision of business working in concert with governments, civil society, and international organizations to promote remedies that will advance the rule of law.

Fostering a culture of integrity in the global trading system that enables inclusive economic growth requires all actors to take concrete steps to maintain open, transparent and meritocratic environments where there is proper enforcement and adjudication of the law. These actions include addressing structural obstacles to trade and investment, simplifying regulatory frameworks, harnessing technology to increase transparency in public functions like procurement, permitting and licensing processes, supporting trade facilitation efforts that strengthen and make customs regimes more efficient, and extending legal investment protections. It is only through this collaborative action and partnership among all stakeholders that a world where corruption is vanquished and a culture of integrity thrives can truly be possible.

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Kendra Gaither

Kendra Gaither is the Executive Director of the Coalition for the Rule of Law in Global Markets at the U.S. Chamber of Commerce. Over her career spanning two decades, Kendra has specialized in international trade and investment as a career diplomat with the State Department focused working in Sub-Saharan Africa and the Americas, and global public policy innovation through strategic partnerships at Carnegie Mellon University.

This article originally appeared on TradeVistas.org. Republished with permission.

heirloom tomato

ALL THE WORLD TREASURES AN HEIRLOOM – TOMATO, THAT IS

Everyone Can Enjoy an Heirloom

Spring weather heralds the start of weekend farmers markets offering colorful fruits and vegetables, artisanal cheeses, and home-made baked goods. Along the east coast, tomatoes play a starring role at the local farmers markets. Green, yellow, orange, brown, grape tomatoes, cherry tomatoes, large, small – the variety seems endless.

Farmers markets are a great way to shop fresh and seasonal, but if you can’t get there, you can still find an increasingly impressive selection of tomatoes at your local grocery store. Are the tomatoes in the organic corner market the same tomatoes you get from the farmer? Unlikely. For the most part local farmers cannot sustain supply to large grocery chains where consumers are demand tomatoes year round. To meet that demand, the business of the heirloom tomato has grown global.

Pimp my Tomato

Italians made tomatoes a kitchen staple, but the tomato didn’t originate in Europe. Researchers have traced its origin to the “pimp,” a pea-sized red fruit that grows naturally in Peru and Southern Ecuador. As with so many foods we love, the Mexicans domesticated the tomato and Spanish explorers brought it home, where locals created a sweeter and tastier, but also more vulnerable, tomato.

Whether due to the preferences of grocers or their shoppers, the market overwhelmingly demands that growers focus on the few breeds of tomatoes that dominate our grocery shelves today. Producers worked to change the characteristics of tomatoes through cross-pollination in order to increase yield, to produce uniform shapes and sizes with smooth skin, and to render the tomatoes hardier for transport. Tomatoes are picked while green and artificially ripened with ethylene gas, sacrificing better taste for better looks (the flavor comes from the sugars that develop as the tomato ripens naturally).

partial-dg-pimp-tomato-graphic-for-web

Photo: The pimp fruit by David Griffen, Smithsonian.com

The New (Old) Tomato

The strict definition of heirloom tomato is a variety of tomato that has been openly pollinated for more than 50 years. Today, most experts would consider heirlooms as any non-hybrid tomato. Unlike heirlooms, many hybrid vegetables and fruits, while resilient and uniform, produce seeds that cannot reproduce. Therefore, the open pollination principle for heirlooms is key. As a result, it is the seed savers and gardeners with a flair for history that helped propel heirloom tomatoes to their elite status.

In the last decade, consumers started going back to the tomato’s heirloom roots. Top restaurants, prominent chefs, cooking magazines, the farm-to-table movement, and the proliferation of farmers markets have all put heirloom tomato flavor on display. Americans have become more tomato-curious than ever.

Regional is the New Local

Generally speaking, the entire world loves a tomato. As the most consumed vegetable in the world, we devour 130 million tons of tomatoes every year, of which 88 million are sold fresh. The remaining 42 million tons are destined for processing into tomato sauce and other products. China, the European Union, India, the United States, and Turkey are the world’s top producers.

Trade in tomatoes tends to be regional. Asia, Europe, and Africa represent 45 percent, 22 percent, and 12 percent, respectively, of global production, and much of what’s grown in one region is traded there. France, for example, is the fifth largest producer of tomatoes in Europe, exporting one quarter of its production across the European continent, primarily to Germany.

North American Tomato Trade – A Tasty NAFTA Product

About half of fresh tomatoes consumed in the United States are imported. The government applies tariffs to fresh tomatoes from countries we don’t have a free trade agreement with, and the tariffs fluctuate based on the timing of the U.S. growing season. From March 1 to July 14 (when Florida’s volume is highest and California and southeastern producing states begin to ship commercial tomatoes), it’s 3.9 cents per kilogram. Between July 15 until August 31, it goes down to 2.8 cents per kilogram (availability of locally grown tomatoes is highest). September 1 to November 14, it goes up again to 3.9 cents per kilogram. For the remainder of our winter, November 15 until March 1, it goes back down to 2.8 cents per kilogram.

Nearly all of fresh tomatoes we import into the United States come from Mexico (89 percent) and Canada (10 percent) duty-free under NAFTA. NAFTA partners are also the primary destinations for exported American tomatoes, with 77 percent of our exports going to Canada and 20 percent to Mexico. (The United States manufactures 96 percent of the tomatoes it uses in processing.)

Even though they enter the United States duty-free, tomatoes from Mexico are subject to minimum prices that vary based on the season; the price floor for winter tomatoes ranges from 31 cents to 59 cents, while summer tomato prices vary between 24.6 to 46.8 cents, depending on the tomato category. This is because Mexico has gotten very efficient at producing tomatoes year-round, which concerns some segments of American growers, particularly in Florida.

Florida growers are seeking changes to U.S. antidumping and countervailing duty proceedings in the current renegotiations of NAFTA to allow them to pursue dumping cases based on pricing in one specific season versus relying on three years of data, as is currently required. This proposal has created rifts among U.S. growers – primarily Southeast growers who support it and Western growers who fear its consequences. Mexico has also expressed strong opposition. American producers of other fruits and vegetables have also publicly opposed the proposal. They worry Mexico could use the same approach against American exporters of perishable produce.

Global, Regional, Local – It’s All Good

Our love for tomatoes will not recede any time soon. Improvements in technology are helping farmers increase their yields while maintaining or even reducing the acreage they are devoting to tomatoes. But even as trade routes for tomatoes are increasing and broadening, the allure and specialness of a locally-grown fresh tomato remains.

Tomatoes are the most popular plant for amateur home gardeners like myself. And with spring in full bloom, it’s only a matter of time before local tomatoes explode onto the scene in our neighborhood farmers market, exhibiting their versatility and flavor. The heirloom tomato has once again returned to prominence – just sprinkle a little salt on it, and take a satisfying bite. Trust me, you won’t regret it.

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Ayelet Haran

Ayelet Haran is a contributor to TradeVistas. She is a government affairs and policy executive in the life sciences industry. She holds a Master’s of Public Administration degree in International Economic Policy from Columbia University.

This article originally appeared on TradeVistas.org. Republished with permission.

tomatoes

IMPORTED TOMATOES FROM MEXICO HAVE SOME U.S. GROWERS SEEING RED

Tomato Trade Tensions Simmering Again

Nothing says “summer” like a fresh tomato. And thanks to trade, tomatoes aren’t just a seasonal treat for Americans. A trade policy battle, however, over our favorite little red vegetable that had simmered on the back burner for decades recently heated up again and might have threatened our ability to enjoy tomatoes year round.

While NAFTA – now replaced by the U.S.-Mexico-Canada Agreement (USMCA) – eliminated trade barriers for most agricultural exports, trade in tomatoes between the United States and Mexico remains complicated to this day. U.S. growers have made a fresh push for the Administration to protect domestic tomato production against imports of increasingly competitive Mexican produce.

Seasons of Discontent

The United States is the second largest producer of tomatoes in the world, but with each American eating an average of more than 20 pounds of tomatoes a year, we import them to satisfy high demand. Mexico is the largest exporter in the world and the United States’ top international supplier. Of the $2.4 billion worth of tomatoes the United States imported in 2019, $2.1 billion came from Mexico, representing 87.5 percent of total U.S. tomato imports.

MX imports of tomoatoes

Although Mexico exports a wide variety of seasonal produce to the United States ranging from bell peppers to blueberries, it’s trade in tomatoes that has been a consistent source of tension. That’s because tomatoes are one of the highest valued fresh vegetable crops in the United States and Mexican tomatoes directly compete with tomatoes grown in the state of Florida during the winter and early summer.

Over the last two decades, U.S. tomato production has declined substantially while Mexican imports increased. And while Florida is still the top tomato state in the nation, production there has declined steadily since 2000. Florida once had 300 tomato growers, but now has fewer than 50. Labor is one major reason for this change. Fresh tomatoes are largely picked by hand – and farm workers are increasingly hard to find and expensive.

MX v FLA

Animated Suspension

Throughout this downward trend, the American tomato industry has complained that Mexican growers have an unfair advantage. The Mexican tomato industry has significantly ramped up production not just thanks to lower labor costs, but also extensive support from the Mexican government in the form of capital for producers, investment in infrastructure and technology to modernize the industry, and other subsidies throughout the supply chain.

The American tomato industry first filed a case with U.S. trade agencies back in the 1970s seeking relief from competition from low priced tomatoes from Mexico, which they alleged were being sold at less than fair market value in the United States (or “dumped”). The antidumping case was ultimately dropped, but after NAFTA was enacted, Florida tomato growers renewed their complaint, claiming Mexican tomatoes were a threat to the domestic industry. The U.S. International Trade Commission found in favor of U.S. growers. Facing potential antidumping tariffs on their exports, Mexican growers in 1996 entered into what’s known as a “suspension agreement.”

By law, the Commerce Department can suspend an antidumping duty or countervailing duty investigation when the parties in the case reach an agreement that meets certain statutory and policy criteria. Under the tomato suspension agreement, the Mexican industry agreed to reduce production and meet a minimum price floor for fresh tomatoes. Suspension agreements require ongoing monitoring to ensure compliance through a process that is completely separate from NAFTA or USMCA. The tomato suspension agreement of 1996 has been updated and expanded three times: in 2002, 2008 and 2013.

To-may-to, To-mah-to, Let’s Call the Whole Thing Off

The suspension agreements were intended to prevent further dumping and injury to the U.S. tomato industry. However, growers in the U.S. southeast have said the agreements were not successful in achieving that goal because provisions were either unenforceable or subject to loopholes. With those concerns in mind, the Florida Tomato Exchange submitted a request to the Commerce Department in November 2018 to terminate the 2013 suspension agreement.

In February 2019, the Commerce Department notified the Mexican government of its intention to withdraw. On May 7, the U.S. government officially terminated the 2013 suspension agreement and enacted a 17.56 percent duty on imported Mexican tomatoes. Some expressed concern the move would stir up a trade war between the two countries, leading to higher prices for consumers and a reduction in the winter tomato supply as Mexican growers shifted their acreage to other crops, though the Administration stated its willingness to resolve the dispute even as its antidumping investigation continued.

Then, in September 2019, the Administration announced a new suspension agreement had been reached with Mexican exporters, effectively putting an end to the investigation. The new agreement is meant to protect U.S. producers from being undercut on prices. It includes audits and border inspections to prevent imports of low-quality tomatoes that could have a similar effect of depressing prices.

USMCA’s Rotten Tomatoes

At the same time that the antidumping investigation was playing out, USMCA was picking up steam on Capitol Hill. After receiving bipartisan support in the House and Senate, USMCA was signed into law on January 29, 2020 and entered into force on July 1, 2020, officially replacing NAFTA. It is easy to see why most American farmers and ranchers rallied support for USMCA. Canada is the top market for U.S. farm products, with Mexico following in the number two spot. U.S. agricultural exports to both countries totaled $44 billion in 2018.

However, one vocal segment of the U.S. agriculture industry was not entirely happy with the USMCA provisions. Fresh produce growers in the U.S. southeast expressed concern that Mexico continued to undercut their prices, dumping cheap fruits and vegetables in the market during their peak harvest time. Farmers from states including Georgia and Florida argued they had watched NAFTA erode their share of the U.S. market and that USMCA was an opportunity to provide a remedy.

American growers from the southern region pushed for new protections in USMCA through antidumping and countervailing duty provisions as a way to even the playing field from what they see as unfair subsidies, labor and environmental practices by Mexico that make U.S.-grown specialty crops like tomatoes and blueberries less competitive.

To create some leverage in the USMCA negotiations, lawmakers from the southeast region introduced legislation, the Defending Domestic Produce Production Act, designed to make it easier for seasonal growers to petition the Commerce Department and the U.S. International Trade Commission to investigate Mexico’s subsidies and dumping of cheap produce. This change would measure injury to industries with short harvest windows (like tomatoes and strawberries) on a seasonal basis rather than having to prove nation-wide, year-round harm.

Congressional letter on tomatoes

Hybrid Views in the Produce Industry

But the U.S. produce industry is not unified in its criticism of seasonal produce imports from Mexico or in its support for a trade remedy to the problem. Growers and distributors in western states like California and Arizona argued against including changes in USMCA because many of those companies work in both the United States and Mexico to ensure fresh produce is available year round. They also worried that Mexico would use the same approach against American produce like apples and grapes. Industry groups in Nogales, Arizona opposed the changes as well, citing a negative ripple effect on their economy if the produce from Mexico that passes through gateway communities were significantly reduced.

Twenty-three Senators and U.S. House members from Arizona, Texas, and California sent a letter to the U.S. Trade Representative opposing attempts to insert seasonal antidumping language into USMCA. The lawmakers wrote: “using USMCA as a vehicle for pursuing seasonal agriculture trade remedies risks pitting different regions of the country against each other.”

While the Trump Administration initially seemed sympathetic to the southeastern growers’ complaints, the provisions ultimately did not make it into USMCA given the concerns of other producers in the sector who would be potential targets for retaliation from Mexico. But the Administration committed to continue an investigation into the issue.

Is the Dispute Ripening Again?

In August 2020, USTR, the U.S. Department of Agriculture, and U.S. Department of Commerce held two hearings to collect feedback about whether trade policies are harming American seasonal produce growers. The hearings are part of an effort promised by the Administration to respond to any trade distorting practices within two months of USCMA going into effect.

At the listening sessions, lawmakers and growers from southeastern states spoke out about how their sector is impacted by subsidies and other practices by Mexico that they believe are hurting American agriculture. Senator Marco Rubio (R-FL) asked the Administration to use Section 301 authority to investigate and potentially take retaliatory action against Mexico.

Following the hearings, U.S. Trade Representative Robert Lighthizer said he is working with USDA Secretary Sonny Perdue and Commerce Secretary Wilbur Ross to come up with a plan to address the growers’ concerns by September 1. What action the Administration may take to protect American producers – notably located in states like Florida that may be key for the president’s re-election bid – remains to be seen.

What we do know is that southeastern produce growers seem cautiously optimistic that the new suspension agreement for tomatoes will be more effective than past iterations. And while most Americans are likely unaware of the ongoing tomato trade tension between the U.S. and Mexico, shoppers undoubtedly benefit from year-round access to affordable fresh produce.

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Sarah Hubbart provides communications strategy, content creation, and social media management for TradeVistas. A native of rural Northern California, Sarah has melded communications and policy throughout her career in Washington, D.C., serving in government affairs, issues management, and coalition building roles in the agricultural sector. She is an alum of California State University, Chico and George Washington University.

This article originally appeared on TradeVistas.org. Republished with permission.

trump

Trump Signs USMCA Into Law But Not Everyone is Cheering

President Donald Trump signed the United States-Mexico-Canada Agreement (USMCA) into law at a Jan. 29 White House ceremony, officially canceling the North America Free Trade Agreement (NAFTA). “The USMCA is the largest, most significant, modern, and balanced trade agreement in history,” Trump told admirers and the press. “All of our countries will benefit greatly.”

“Thanks to the unyielding dedication of President Trump, the United States will now have a fair and reciprocal trade agreement with Mexico and Canada,” reacted U.S. Secretary of Labor Eugene Scalia. “USMCA will bring jobs, increased trade and stronger economic growth to our already record-setting economy, growing GDP by as much as $235 billion and adding as many as 500,000 new jobs.

“President Trump has delivered on a promise,” Scalia continued. “This historic agreement will level the playing field for American workers, preparing American businesses for the demands of a 21st Century economy. The Department of Labor stands ready to fully implement USMCA to the benefit of American workers.”

An independent report by trade credit insurer Atradius found the USMCA “has reduced trade policy uncertainty in North America, shielding Mexico and Canada from any global tariffs on cars the U.S. might impose on national security grounds.”

But not everyone was cheering. “USMCA is only marginally better than previous trade deals and doesn’t do nearly enough to create American jobs, increase workers’ wages, or protect workers and the environment,” states Groundwork Collaborative, an initiative dedicated to advancing a coherent, persuasive progressive economic worldview and narrative. “Trade is like every other economic issue: It is only really working when it is working for ALL people, not just the wealthy and well-connected. USMCA doesn’t meet that standard and is a major missed opportunity.

global trade

Global Trade: 2019 Wrap-Up and 2020 Forecast

Looking back at this year, 2019 saw a multitude of global economic growth disruptors from the escalation of the trade war between the U.S. and China, to Germany’s manufacturing and automotive decline and Brexit.

Consequentially, global trade growth has almost come to a standstill, and while it’s not quite at recession levels, nearly every market and sector, as well as businesses within those sectors, have felt the impact of policies and decision making.

Even with the possibility that trade growth could rebound in 2020 to a modest 1.5%, economic policy uncertainty remains high and if it abates, it is likely only to do so to a limited extent into 2020. What factors are at play? Let’s take a look.

Trade war with China. Despite the recent conclusion of ‘phase one’ of a U.S.-China trade deal, uncertainty remains high. The underlying reason for the trade war is not resolved and is unlikely to be resolved soon either: it regards fundamental issues such as the influence of China on the global economy and theft of intellectual property. Although tensions may temporarily soften, as they seem to do now, we see no end in sight for the trade war with China and with the current administration in the White House for one more year, another rocky year is forecasted. The trade war alone is affecting no more than almost 3% of global trade — currently approximately $550 billion of goods — but it is sending a ripple effect around the globe from business investment to value chains and trade flows. If it expands to other economies in Asia and Europe, which is very possible, we could see an even more pronounced slowing in trade.

Brexit. The self-imposed economic hardship has caused much uncertainty and plummeting fixed investments in the business sector. With Boris Johnson elected to Prime Minister in the December election and Brexit a certainty come January 31, policy uncertainty has been lessened, but some will remain until a new trade relationship with the EU is shaped. While the clout of those favoring a no-deal Brexit has been diminished, a no-deal Brexit is still possible. If this occurs, it would throw chaos into supply chains across Europe.

Business insolvencies and market pressure. The U.S. is expected to lead the number of business insolvencies with a 3.9% increase in 2020, far above the global average of 2.6% expected next year. This is due to the fact that there’s been lower business investment, lower external demand (especially from China), and higher import and labor costs. Those sectors feeling the most pressure include steel, which is dealing with an overcapacity issue, automotive, and businesses dealing in aircraft, which have seen a 20% market share loss. U.S. businesses dealing in vegetable and animal products and agriculture won’t see any relief soon either, and all U.S. businesses that have typically relied on imports from China (as well as businesses in China relying on imports from the U.S.) are now facing higher costs, which are resulting in insolvencies.

Despite all the economic doom and gloom, there are a few bright spots. Indeed, the ‘phase one’ agreement between the U.S. and China provides at least hope. Moreover, the U.S. signed trade agreements with Japan, Canada, and Mexico, and a few countries, like India and China, which are pulling their weight with a 6% GDP growth rate, are providing some positive impact on the global figure as they continue to grow at rapid pace, that is to say above 5% per annum.

Further, the consumer outlook looks positive with household consumption in both North America and Europe ending on a high note, thanks to low unemployment. Unfortunately, this alone cannot support economic growth. Low-interest rates and the amount of money floating around the U.S. as well as Europe could give rise to turmoil in the markets and the economy – both pillars of global growth – and any detriment to consumer confidence could put the economy in a downward spiral, reversing the modest growth expectations set for 2020.

There is much at stake and a low likelihood of that changing for 2020. If economic and political developments continue to sour, economic growth could be hampered even more than it already is.

__________________________________________________________________

John Lorié is Chief Economist at Atradius Credit Insurance, having joined the company in April 2011. He is also affiliated to the University of Amsterdam as a researcher. Previously, he was Senior Vice President at ABN AMRO, where he worked for more than 20 years in a variety of roles. He started his career in the Dutch Ministry of Foreign Affairs. John holds a PHD in international economics, masters’ degrees in economics (honours) and tax economics as well as a bachelor’s degree in marketing.

USMCA

A Vote on USMCA is a Vote for Predictability

For all their legal nuance, trade agreements are written to make commerce more predictable. The rules are meant to increase business confidence, boost investment and spur job creation. It’s time for Congress to show bipartisan support for a more predictable North American market, and pass the United States-Mexico-Canada Agreement (USMCA).

USMCA is a much-needed upgrade of the North American Free Trade Agreement (NAFTA), a text that was largely copied over from the US-Canada bilateral trade agreement signed in 1988. To say that NAFTA is outdated is an understatement. Canada and Mexico have concluded trade deals with other countries that do things NAFTA could have never anticipated 25 years ago. USMCA is needed just to keep up.

Three chapters of USMCA deserve far more attention than they’ve received.

First, the chapter on health and safety standards is a must for US agriculture. The biggest threat to our ranchers and farmers is a lack of science-based import regimes abroad, not tariffs.

Tariffs are a tax on trade, whereas health and safety standards, applied in a non-scientific or in a discriminatory way, can act as a ban trade. US agricultural exporters have long demanded more science-based approaches to what are called sanitary and phytosanitary standards, and USMCA delivers on this. USMCA also puts forward a number of consultative mechanisms that will help prevent certain market access problems from arising in the first place.

US agriculture needs Chapter 9 of the USMCA.

Second, the chapter on technical barriers to trade is essential for US manufacturers. It covers the regulatory measures that impact over 90 percent of goods exports from the United States. This is fertile ground for protectionism. Governments can easily use regulatory measures, or ways of assessing conformity with them, that shield domestic producers from import competition. In fact, they can completely shut down trade with a few strokes of the legislative pen.

In USMCA, American manufacturers have more of a voice in the regulatory process in Canada and Mexico concerning their exports. Importantly, USMCA also calls on the three countries to recognize that, in setting technical specifications, performance, and not the provenance of the regulation, is what should matter. This is a longstanding US demand, and USMCA represents a tangible win for US exporters in this regard.

American manufacturing needs Chapter 10 of USMCA.

Third, the chapter on intellectual property is upgraded to reflect the needs of a building a creative economy. The list of international agreements that inform USMCA is striking; many didn’t exist in 1994, never mind in 1988. Copyright protections are modernized, as are those for biologics, a type of drug that could not have been imagined when NAFTA was negotiated. Whereas patents, alone, could help stimulate investment in small molecule drugs, they aren’t enough for the living systems that define biologics. USMCA brings Canada and Mexico closer to the US standard, and in this regard increases protection of American IP abroad.

Other IP provisions will assist a variety of America’s creative industries, from film to fashion to iPhones. These modernized rules, along with consultative mechanisms to ensure a level playing field, will provide the kind of protections that inventors need to bring their ideas to market. This is a win.

America’s creative industries need Chapter 20 of USMCA.

Still, there are some who, while recognizing the benefits of USMCA, worry that the deal cannot effectively enforce labor and environmental standards. They shouldn’t be. The provisions are as good as anything in the EU-Mexico trade agreement, for example, and Europe is renowned for having high expectations on both fronts, both domestically and internationally.

Polls show that, regardless of party, American voters are more supportive of free trade now than ever before. Democrats, Independents and Republicans converge around 80 percent in favor. Polls also show that USMCA has bipartisan backing.

The United States is part of a North American market that thrives on predictability. It’s time for Congress to unite behind USMCA and deliver predictability.

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Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at Georgetown University’s School of Foreign Service.

drugs

WHAT TODAY’S USMCA DEBATE HAS TO DO WITH THE DRUGS OF TOMORROW

The political winds seem to be blowing in favor of a Congressional vote on the U.S.-Mexico-Canada Free Trade Agreement (USMCA) yet this fall. But before they vote, some Members of Congress want to talk over a few issues with the Trump administration’s negotiators. They are pressing the administration to lower intellectual property protections for the U.S. biopharmaceutical industry because they say the agreement’s provisions protecting original data generated by pharmaceutical inventors will drive up the price of prescription drugs.

Their arguments strike a political nerve but don’t offer a complete picture of this complex and evolving industry. The USMCA debate reflects a domestic difference in views. While the United States works to develop its regulatory framework for newer drugs, many other markets are further behind. As important as it is, the issue of data protection for biologic drugs is not well understood. We’ll try to cover the top lines.

Pieces of the Intellectual Property Puzzle

For American innovators of biopharmaceuticals, gaining access to overseas markets requires not only securing regulatory approvals; the policy environment must also be conducive to marketing their products, which includes a value-based approach to pricing, procurement, reimbursement policies – and intellectual property protections.

There are various facets to the intellectual property (IP) protections needed to incentivize massive investments in pharmaceutical innovation and to enable the recovery of those costs once a drug is commercialized. Patents are part of the package and so is the protection of proprietary data, the issue at the fore in discussions about USMCA.

These protections are particularly important to American companies. The intellectual property attached to 57 percent of the world’s new medicines was created in the United States. That’s no accident. Research and development activities flourish in countries where IP frameworks are well developed and enforced.

70% drug dev

What is Data Protection?

To achieve marketing approval from a regulatory oversight agency such as the U.S. Food and Drug Administration and its counterparts in other countries, innovator pharmaceutical companies submit data on the outcomes of their research and years of clinical trials demonstrating the drug is effective and safe. The cost and risks of developing the original data and product fall to the inventor.

When a generic producer or producer of a “biosimilar” seeks approval, they are often afforded the short cut of relying on the inventor’s data. To ensure a balance between incentivizing drug discovery and development while also providing opportunities for lower-cost copies to become available, the inventor’s data may be protected for a period of time against disclosure to generic or biosimilar producer. During this time, any competitor is free to undertake their own data and seek marketing approvals on that basis.

For How Long?

Provisions on data protection are not new in domestic regulations or in trade agreements. Since the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) in 1995, World Trade Organization (WTO) members have agreed not to disclose clinical data submitted to regulatory authorities to obtain marketing approval for pharmaceutical products, thereby protecting such data “against unfair commercial use”.

Negotiators of the TRIPS Agreement contemplated specifying that data protection should be no less than five years, but ultimately refrained from including a specific timeframe, leaving it to the discretion of WTO members in their national regulations. NAFTA, which took effect in 1994, provides a minimum of five years.

Enter a New Type of Drug

The timing of these provisions is relevant to the debate today. The TRIPs and NAFTA provisions apply to new “chemical entities,” meaning small molecule drugs – that is, most drugs on the market to date. These types of drugs are capable of being replicated through chemical synthesis to make generic drugs. For this reason, regulators tend to agree that requiring duplicate data from generics would be an inefficient use of resources and unnecessary testing of patients, as long as the generic product is proven “bioequivalent” to its reference product.

Biologics are newer medicines. They are large, complex molecules that are made from living cells to produce the required proteins. This manufacturing process is vastly more complex. A follow-on product is not identical, but rather structurally similar and thus called a “biosimilar”. An exact replica is not possible, and patients cannot automatically be switched from a biologic to its biosimilar without risk of adverse effects.

Given the differences between biologics and small molecule drugs, they are regulated differently, and the IP protections have been applied differently. Biologics are largely defined by their manufacturing processes and regulatory approval of biosimilars does not require identity with the reference product, so biologics must often rely only on process patents versus a product patent. Innovator companies argue a longer term of data protection is needed to bridge the differences in patent protection or to offset the lack of patent protections in some countries, while allowing them to recover the increased cost of generating the original data.

New Trade Provisions for Biologics

Given the longer innovation cycle and the increased cost and complexity of biologics, many governments have provided longer periods of data protection for biologics than for small molecule drugs.

In the United States, the Biologics Price Competition and Innovation Act signed into law by President Obama in 2016, provides for a 12-year period of regulatory data protection for biologics. American companies have sought the same standards from trading partners.

With new agreements in the WTO largely stalled, the focus of trade negotiations over the last decade has shifted to bilateral and regional trade agreements where provisions are often more detailed and tailored. In negotiations toward the Transpacific Partnership Agreement (TPP), the United States pushed for 12 years, but agreed to eight years for biologics from the date of first marketing approval and allowed flexibility in how data protections could be administered. When the United States withdrew from the TPP, the remaining members suspended the relevant provisions.

In the USMCA, American biopharmaceuticals again did not get everything they wanted. Canada and Mexico do not have to match the United States in providing 12 years but agreed to increase the duration of data protection to 10 years from the current standard of five years in Mexico and eight years in Canada.

10 years in USMCA

Why Push Trading Partners to Increase Data Protections?

Beyond North America, the so-called “pharmerging” markets (generally the large developing countries) are growing faster than the stable developed markets. China is by far the largest emerging market for pharmaceuticals. In many developing countries, patent systems are weak or poorly enforced. Regulatory data protection provides some buffer against IP exposure, making it viable and more attractive for companies to introduce their products in that market.

Less data protection and lack of enforcement diminish the potential for U.S. exports. It also leaves the door open for competitors to access unprotected U.S. data without the originator’s authorization. Trade agreement obligations help guard against the unfair commercial use of proprietary data and expand the degree of IP protections in global markets, which is a precursor to greater diffusion of innovative drugs to patients worldwide.

Back to the Core Concerns – Availability and Costs to Patients

Critics of USMCA’s provisions argue data protections keep the prices of biologics high by delaying the introduction of biosimilars. The first biosimilar product was approved in the U.S. market in March 2015. By March 2019, 18 had been approved. Many experts suggest biosimilars have lagged in the U.S. market due to slower changes to the U.S. regulatory system and patent litigation as the industry goes through the same growing pains it did with generic regulation.

As well, drug development is an inherently expensive and risky business, characterized by high failure rates. On average, the process of discovery and commercialization takes 10-15 years at a cost of $2.6 billion. Less than 12 percent of drug candidates make it all the way from lab to patient.

Because of the complexity and high fixed costs required to develop the capacity to manufacture biosimilars, it takes eight to 10 years for biosimilars to come to market, there are fewer entrants than is the case with generics, and the cost savings realized are 10 to 30 percent off the brand, versus an average of 80 percent achievable by generics. Considering the length of time normally required to achieve safe and reliable production of biosimilars, the data protection period in USMCA is unlikely to be a cause of undue delay in getting them to market. Data protection terms are also often less than the remaining patent term.

Your Loss is My Gain

The prominent healthcare research firm, IQVIA, forecasts the biopharmaceutical industry stands to lose $121 billion between 2019 and 2023 as periods of market exclusivity end. Eighty percent of that impact, or loss for innovators, will be in the U.S. market as nearly all of the top branded drugs will have generic or biosimilar competition.

IQVIA says competition among biosimilars is on a path to grow three-times larger in 2023 than it is today. If that’s so, savings over branded biologics could produce approximately $160 billion in lower spending just over the next five years, even as overall spending on biologic drugs grows.

This is part of the business cycle of the pharmaceutical industry and why the innovators maintain strong pipelines because they have limited exclusive time in the market before competitors arrive. That’s good for patients. The data protections in USMCA are not likely to materially impact this cycle or spending. When Canada and Japan lengthened their duration of data protection, drug spending as a percentage of GDP remained nearly flat.

ME losses

Reason for Optimism

Biologics are called the drug of tomorrow. They comprise nearly 70 percent of the innovation pipeline which includes some 4,500 drugs in development in the United States and another 8,000 globally.

Breakthrough products are expected for cancer treatments, autism and diabetes. This is great news, but specialty and niche products tend to come at a higher price so spending may increase as these new drugs enter the market. According to IQVIA, average spending on the brand versions will nonetheless decline from 8.2 percent of the U.S. market to 6.7 percent, a demonstration there’s a healthy market for originals and copies.

There would be no copies without the originals, which is why pharmaceutical regulatory and legal frameworks are full of public policy trade-offs to strike a balance that will support return on innovation while not impeding the availability of affordable drugs. As we make scientific progress, the systems that include IP protections must evolve to accommodate new types of drugs, new capabilities in data analytics and clinical practices, and even changing business models. Not doing so can imperil the pace of progress at precisely the moment when breakthroughs are on the horizon.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

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.

How Global Subnational Relationships Promote Stability in Challenging Times

Over the past several years, the leaders of America’s 55 states, territories, and commonwealths have taken more prominent roles on the world stage. State Governors have been advancing Americans’ interests in building strong economic and other ties across the globe.

Our state economies are intertwined with numerous nations to the point that many Americans have jobs because companies around the world invest in the U.S. and we sell countless products and services to other nations. International economic relationships are vital — so foreign officials, businesses, nonprofits, and community groups are turning more often than ever before to our states’ chief executives for insights and stability.

With this in mind, the National Governors Association (NGA) created a new program called NGA Global as a platform for governors to convene with their counterparts beyond U.S. borders. Our member governors foster mutually beneficial relationships to boost their states’ global competitiveness and fulfill their goals in infrastructure, energy, agriculture, tourism, innovation, workforce development, public health, law enforcement, human rights, education, the environment and more. Most importantly, Governors working with their fellow leaders in other countries and with companies across the Globe creates economic development and job creation in their states.

America’s governors certainly honor their role in the U.S. constitutional system by staying within the parameters of all federal treaties and policies, while adding depth and detail through their direct interactions with international colleagues. Their activities link their home-state communities with bustling global marketplaces and opportunities for capital – contributing to the $1.5 trillion the U.S. reaps from exports and the nearly $370 million we attract in annual foreign investment, according to SelectUSA.

As leaders of economies that rival most countries in size and prosperity, our state governors are continually sought out by heads of state, including Justin Trudeau of Canada, Nana Akufo-Addo of Ghana, and Malcolm Turnbull of Australia, each of whom addressed NGA meetings over the past year. Governors equally value the peer-to-peer contact made possible through important working relationships with the Governors association equivalents from all over the world including Japan, Mexico, Canada, and Kenya. Governors also partner with global organizations such as the German Marshall Fund, Council for The Australian Federation and the World Economic Forum to create important relationships and leverage their expertise to improve economic development and create jobs in their states.

The relationships developed through these organizational alliances position the U.S. for success on many fronts. For example, earlier this year, just as NAFTA discussions faltered, NGA Global was convening its North American Summit. Governors from Mexico and the U.S. and Premiers from Canada cordially shared information, seriously discussed even controversial topics and developed important professional relationships. The event underscored the cross-border commitment that unites the continent and encourages necessary continued cooperation.

Governors are working to expand these healthy international relationships. Idaho Governor Butch Otter recently embarked on a trade mission to Canada while Arizona Governor Doug Ducey traveled to Mexico, which connected major commodity groups from their states with Canadian and Mexican business leaders and government officials. While there, they provided their local companies significant venues to pursue potential business partnerships, network and develop trade opportunities.

Similar progress is being made in Europe. Governor Phil Murphy was recently on hand for the opening of a Choose New Jersey office in Berlin, Germany, which will leverage investment possibilities in Garden State manufacturing, biotech, and technology startups, among other sectors. Similarly, Indiana Governor Eric Holcomb is developing a Hoosier presence in the EU through interactions within Switzerland, Austria, Germany and France.

Last month, Louisiana Governor John Bel Edwards went to Israel to promote economic development and research partnerships. He’s already sealed an agreement tapping Louisiana’s water-technology industry and is keen to tie in cybersecurity as well. Governor Edwards also demonstrated global leadership on non-economic issues, having visited the Vatican, for instance, on an anti-human trafficking mission.

In a time of uncertainty in Washington and around the world, America’s governors are reaffirming the country’s value as a trading partner and ally. As governors forge and deepen their relationships with counterparts and business leaders around the world, NGA Global will continue to help them break down international barriers and expand the opportunities available to their constituents worldwide.

Mr. Pattison is Executive Director and CEO of the National Governors Association.