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A Tipping Point in the Trade War? 4 Tips to Consider Now.

trade

A Tipping Point in the Trade War? 4 Tips to Consider Now.

While reassured by a recommitment to the U.S.-China trade agreement, companies still need to be vigilant in protecting their supply chains from pandemic aftershocks – and election-year unpredictability.

Think back – way back – to January 2020. The U.S. and China signed the Phase 1 trade accord, agreeing to roll back tariffs, expand trade purchases and renew pledges on intellectual property.

Many global shippers felt encouraged by the prospect of improved trading days ahead. And various American businesses welcomed the chance to equalize their trade footing and to counteract China’s intellectual property practices.

While many companies continue to manage through the hefty impact of the various trade remedy measures of Sections 201, 232, and 301 of the Trade Act, there was hope that Phase 2 of the trade deal between the U.S. and China would signal even better prospects.

But then the coronavirus claimed center stage. Its supply-chain side effects dominated the global marketplace, turning it into a de facto PPE-and-sanitizer delivery system – presenting shippers and manufacturers with an entirely different set of obstacles.

Many global manufacturers and suppliers pivoted to face mask production. French winemakers turned fine wine into the finest hand sanitizer. And American companies in search of these supplies turned to new sources globally, navigating the choppy waters of U.S. Food and Drug Administration (FDA) importing requirements and those of other government agencies in the process.

The administration’s 90-day deferral of import tax payments offered temporary relief to some companies. But for nearly eight months, manufacturers and shippers remained in a state of suspended apprehension when it came to the future of trans-Pacific trading.

Finally, on August 24, U.S. and China trade representatives officially recommitted to carrying out Phase 1 of the trade accord.

The chessboard today
Now, as the U.S. presidential election comes into view, the spotlight is once again on the global chessboard of tit-for-tat tariff moves, amplified by the Trump administration’s desire to counter the practices of U.S. trade partners and address the U.S. trade deficit.

As part of a longstanding dispute over aircraft subsidies, the Office of the U.S. Trade Representative (USTR) initially imposed 10% tariffs on Airbus aircraft – but increased that to 15% in March. Also announced this August, the USTR decided to maintain 15% tariffs on Airbus aircraft and threatened 25% tariffs on other European goods, such as food, wine, and spirits, including a tariff on imported French makeup and handbags, in retaliation against France’s Digital Service Tax (DST). However, no tariffs have been imposed yet as France has not implemented DST.

Trade winds have been equally tempestuous on both sides of the U.S. border. After the U.S. imposed tariffs on aluminum from Canada, Canada retaliated with its own trade penalties.

And the new U.S.-Mexico-Canada Agreement, which took effect this past July, was reassuring for many companies that even dubbed it the new NAFTA. While some North America cross-border shippers are still grappling with compliance and weighing potential trade gains, its changes to cross-border trade overall have been well received by many businesses.

Now, businesses are speculating on the potential supply chain effects in the months to come. Will U.S. tariffs on a long list of Chinese goods be rolled back during the next round of negotiations? That has become the $350 billion question.

Many answers, and potential changes, hinge on the upcoming presidential election.

Be ready for new rollouts
You may recall that the USTR announced – and imposed – some section 301 tariffs quickly after their announcement. While tariffs were suspended on $160 billion in Chinese goods (List 4B) – pending the success of Phase 1 of the agreement – it’s not known if they are suspended indefinitely or if these tariffs could again come into play, further spiking import costs.

Although most believe a swift post-election reversal is unlikely, it’s easy to see the two main party presidential nominees have different strategies on how they would carry out international trade and tariffs post-November. For that reason, the safest course is to be prepared for any outcome. Here’s what you should consider in the coming months to help your company prepare:

1. Speak up about exclusions
So far, the USTR has granted about 2,000 exclusions related to section 301 tariffs, and over 75 exclusions from other section tariffs – many in response to importers’ petitions. In fact, the USTR has announced exclusions to multiple product lists. And while comment periods are over for now, it’s important for companies to voice their opinion for or against tariffs as they’re proposed.

The refunds are retroactive, so some importers stand to gain millions in refunds for previously paid duties.

Since an early exclusion request can produce earlier duty exclusions, vigilance in monitoring and applying for exclusions is vital. But the submission process can be lengthy and complex, requiring businesses to record and report all import product categories that relate to each applicable tariff number or specific product. This is an instance where having a knowledgeable customs broker and trusted advisor, who you can rely on to help and provide expertise, can come in handy.

2. Reconsider drawback and deferment programs
The trade programs you ruled out in the past could be a financial boon now. For example, it may be worth revisiting duty drawback programs, which provide a refund on previously imported goods that are subsequently exported, so consider your current import/export balance. Also, consider if 301 tariffs were to subside, would continuing the program still be practical for your supply chain?

Because formal application to this program can be quite rigorous, consider handing this task off to a 3rd party expert.

You may also want to reconsider bonded warehousing or using a foreign trade zone. Companies that produce major equipment or large machinery, for example, often experience significant lag times between production and sale – incurring duty payments of $200,000 or more per machine.

If you’re not planning on selling major equipment over the next 6 months, it might make sense to import the product into a foreign trade zone and deploy duty deferment tools.

3. If you haven’t already, explore alternative sourcing or production options
The pandemic has reminded companies that diversification is key to business resilience. In practice, that may mean onboarding alternative suppliers or preparing to change production venues in the event of a coronavirus outbreak.

To protect margins as the price of Chinese goods, materials and tariffs climb, many U.S. businesses are turning to lower-priced suppliers in Vietnam and Malaysia. Not only do imports from these countries allow for the avoidance or reduction of tariffs, they can also provide the assurance of a ready workforce and steady material supply.

4. Above all, stay informed
Like most business processes, proficient supply chain management hinges on your ability to manage countless moving parts, and plan and anticipate likely change.

During a global pandemic, amid an economic downturn, and in an election year, change may be the only thing we can predict. Efficiency and preparedness have never mattered more.

Stay current on policy changes and new trade regulations. Consult the USTR website often. Sign up for automated logistics updates and trade advisories. Stay close to your trade association, like the National Association of Manufacturers (NAM) and other industry-specific groups. And turn to a proven 3PL before your internal logistics department becomes overwhelmed.

And then, fasten your seatbelt as we navigate the many changes on the horizon.

nuclear

NUCLEAR OPTIONS: THE TRUMP ADMINISTRATION’S TRADE RESPONSE TO URANIUM PROTECTION

Rocks for Jocks

High school has started online in our household. At our dinner table the other night, we were discussing different science courses and their workloads. My husband recalled that Earth Science (before political correctness) was affectionately known as “Rocks for Jocks,” playing into a stereotype that introductory geology was an easy way to get science credits. If you’re paying attention to trade policy, it’s time to dust off the Earth Science textbooks.

Over the last few years, the national security dimensions of trade policy have come into sharper focus. It has become a lens through which a broad spectrum of trade policies is viewed, including those affecting extraction and trade in the minerals and metals mined from the earth. These materials have vast commercial and vital military applications and are the bedrock of today’s modern and emerging technologies.

Explosive Potential

The United States has had a tepid love affair with nuclear energy, yet nuclear holds an important place in the U.S. energy mix. Nearly 20 percent of U.S. electricity is generated by 96 nuclear reactors in 29 U.S. states. Nuclear accounts for more than 55 percent of U.S. carbon-free electricity.

Beyond consumer electricity, nuclear powers U.S. Naval submarines and aircraft carriers as well as spacecraft and the amazing NASA probes now roving Mars. Nuclear plants produce isotopes used in medical imaging, cancer treatments and radiation that kills bacteria in our food. Globally, advanced reactors are being used to bring fresh water to the Middle East and African countries by powering desalination facilities. It is the only carbon-free energy source that can deliver world energy supplies on a large scale.

What fuels nuclear energy is uranium, a naturally occurring radioactive material containing fissionable isotopes that once concentrated, or enriched, can produce the chemical chain reaction required to generate electricity.

Policy-Enriched Uranium

After World War II, the U.S. government sought to promote the development of the civil nuclear power industry. Nuclear generated electricity would stimulate demand for U.S.-mined uranium, which would in turn assure the supply for military needs.

In 1964, Congress amended the Atomic Energy Act of 1954 to enable private ownership of nuclear fuel. Prior to that, the U.S. Atomic Energy Commission ran the only enriching operations in the free world – a large and dedicated client for U.S. uranium. To shield the U.S. uranium industry from competition as commercial nuclear operations came online, Congress prohibited the importation of foreign-sourced uranium destined for domestic end use. Enriched uranium could not be imported, but the U.S. industry could import natural uranium and enrich it for domestic use and for export. Congress estimated such restrictions would only be required for ten years until civilian demand would grow to such volumes as to sustain uranium production in the United States.

Whether those restrictions constituted a violation of U.S. obligations under the General Agreement on Tariffs and Trade went uncontested by U.S. trading partners, the largest of which were – and still are – Canada and Australia, which boast cheaper, higher-grade sources of uranium.

The import prohibition remained in place from 1969 to 1977. It was phased out from 1977 through 1984 as demand for uranium increased and domestic mining reached capacity. The 1980s would turn out to be a heyday for U.S. uranium, its fate bound with the ups and downs of the U.S. nuclear industry. Nuclear utilities were negatively impacted by conservation efforts during the oil embargos of the late 1970s and suffered major regulatory and policy setbacks in commercial expansion following high profile accidents at Three Mile Island and Chernobyl. Slowed production and plentiful stockpiles for both commercial electricity and defense uses dramatically reduced demand for newly extracted uranium.

U.S. Uranium’s Implosion

The timing of the uranium mining industry downturn coincided with a seminal free trade agreement with Canada, which is a major exporter of uranium for nuclear fuel. The 1989 U.S.-Canada Free Trade Agreement (a precursor to NAFTA and USCMA), exempted Canada from any restrictions the United States imposes on imported uranium.

Although the FTA incorporated GATT national security exemptions under which the United States could derogate from this obligation, Canada and the United States explicitly agreed to limit use of such exemptions in North American trade in energy goods.

The agreement effectively threw open the door to cheaper, high-grade uranium that would displace U.S. uranium. As Canada could fill the majority of U.S. demand, remaining restrictions on imports from other foreign sources would have little benefit to the U.S. uranium industry.

The U.S. industry resorted to filing its first petition to the U.S. Department of Energy under the 1962 Trade Expansion Act Section 232, which required the U.S. Energy Secretary to determine whether uranium was being imported “in such quantities and under such circumstances as to threaten to impair the national security of the United States.” If so, options would include raising tariffs to block foreign imports of uranium.

The Secretary issued a negative finding and President Reagan rejected tariffs on imported uranium. Rather than preserving national security, tariffs were believed to have the potential to disrupt critical supplies, therefore impairing it. The Reagan administration instead established a Uranium Revitalization fund – a government purchase program – to buy up unneeded resources, helping to create space in the market and restore prices for the U.S. uranium industry.

US Uranium Production Falls

The Half-Life of Industry Protection

The term “half-life” derives from nuclear physics. It describes the length of time that stable atoms survive before exponential radioactive decay occurs. Uranium-238 has a half-life of 4.5 billion years. Uranium-235 has a half-life of just over 700 million years. Trade protections for U.S. industries typically have a half-life of around 2 to 3 years.

Artificial and temporary protections (for example: tariffs on imports from foreign competitors) may provide immediate relief for the domestic industry, but that advantage quickly drops off unless the industry makes investments to improve efficiencies or other market conditions change in the domestic industry’s favor.

Since the late 1980s, U.S. nuclear energy producers have steadily increased their purchases of cheaper foreign uranium, primarily from Canada, Australia and Russia. As more uranium circulated in global markets, the U.S. government privatized its uranium enrichment operations during the 1990s, releasing more uranium into the U.S. market. Kazakhstan and producers in Africa also came online, ramping up the use of cheaper and environmentally harmful extraction techniques, exacerbating a growing glut of inventory in global markets, depressing prices and creating more strain on a struggling U.S. uranium industry.

Uranium Resources

Uranium’s Future is Bound with Nuclear

Of the 442 nuclear units in the world, the United States operates 96 nuclear reactors – one-quarter of the global total – compared with 57 in units in France, 48 units in China, and 38 units in Russia. The U.S. fleet produces more electricity from nuclear energy than any other country – two times more than France, three times more than China, and four times more than Russia.

Nuclear energy dominance, however, may be shifting hemispheres. China has 44 reactors under construction and 168 planned. India has 14 reactors under construction and Russia has 24 under construction with as many planned. In contrast, the United States has just three reactors under construction and 18 planned.

Energy expert Jane Nakano points out that, while exporting nuclear materials to supply power plants is largely a private sector endeavor in the United States (though heavily regulated to mitigate proliferation risks), both Russia and China have state-owned or directed industries and are deploying aggressive export and overseas investment strategies with both commercial and foreign policy objectives. As these countries forge ahead with global partnerships, U.S. exports of natural and enriched uranium continue to decline as a share of global exports, dropping from 29 percent in 1994 to 3.4 percent in 2019.

Global Uranium Exports

From Fission to Fizzle

Nuclear generation capacity in the United States may decrease over the next decade depending on the life of existing reactors. Recent financial losses in the U.S. nuclear sector have led to shutdowns and scaling back of investments, further reducing opportunities for U.S. uranium.

Although global demand for nuclear power is projected to grow, especially in East Asia and the Middle East, that’s not necessarily good news for uranium mining and trade.

The OECD Nuclear Energy Agency and International Atomic Energy Agency produce a biannual Red Book, assessing the state of world supply in uranium. The 2018 Red Book indicated that identified recoverable uranium resources are sufficient to power the global nuclear reactor fleet at 2016 levels of installed nuclear capacity for the next 130 years.

Uranium exploration and mine development expenditures have been declining almost everywhere in the world in response to oversupply. At the same time, nuclear plants are being run more productively on fewer uranium resources.

The impact on the U.S. uranium industry is evident in its steep decline in production output. The U.S. Energy Information Agency (EIA) reported uranium mining in the United States produced 78.9 tons in 2019, representing an 88 percent drop from 2018 production of 656.8 tons. It is the lowest output recorded since 1948. For context, 2019 production contributed 0.3 percent of the uranium fuel requirements for U.S. nuclear reactors. The remainder was supplied by foreign producers.

US uranium contribution to fuel US reactors

Good Chemistry

The near-total collapse of the industry prompted the few remaining U.S. uranium mining, milling, and producing companies to file a new Section 232 petition to the Trump administration in January 2018, asserting that reliance on imported uranium constitutes a threat to U.S. national security. U.S. nuclear energy and utility companies opposed new import tariffs, saying the strain of increased costs would threaten the viability of their own operations.

Although fuel for defense purposes is adequately supplied by government stockpiles of highly enriched uranium, the Secretary of Commerce rendered a finding in favor of the uranium industry. President Trump, however, made a choice that diverged from this recommendation and from his use of Section 232 tariffs to protect the U.S. steel and aluminum industries.

Instead, the President issued a memorandum in July 2019 establishing a Nuclear Fuel Working Group to develop recommendations about how to “reinvigorate the entire nuclear fuel supply chain.” In April this year, the working group issued a Strategy to Restore American Nuclear Energy Leadership.

The first step in the plan is a throwback to the Reagan era, creating a uranium reserve through which the Department of Energy will buy uranium directly from domestic mines and contract for uranium conversion services. As for trade restrictions, the Strategy supports the Department of Commerce measures to counter uranium imports from Russia that are “dumped” in the U.S. market at below fair market prices (representing no change from current trade policy). It also explicitly enables the U.S. Nuclear Regulatory Commission to deny imports of nuclear fuel fabricated in Russia or China on national security grounds.

US Strategy

Nuclear Options

The nuclear industry may represent the same or higher strategic importance to national security as the uranium industry. They are interconnected in the same way semiconductors provide brains to your smartwatch and to military weaponry, or the way rare earths drive hybrid cars as well as armored vehicles. They are emblematic of how U.S. industries are affected by global markets regardless of whether their sales are primarily domestic.

What the administration’s approach to the uranium Section 232 petition recognizes is that import tariffs to deliver temporary protections to one domestic industry inherently harm the American buyers of those inputs and the workers in downstream industries.

And, it recognizes that national defense relies on commercial companies to sustain its technology needs. However, the government as a sole buyer cannot support innovation or sales growth for private companies. U.S. companies benefit from tapping into fast-growing foreign markets to be profitable and to reinvest in innovation. It’s a balancing act. “Nuclear options” in trade policy ultimately damage both commercial and national security interests.

___________________________________________________________________

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 fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

railway

France, Italy, and Austria Drive the European Railroad Rail Market

IndexBox has just published a new report: ‘EU – Railway Or Tramway Track Construction Material Of Iron Or Steel – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

In 2019, the EU market for railway or tramway track construction material of iron or steel increased by 1.9% to $3.1B, rising for the third consecutive year after two years of decline. Overall, consumption continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2017 with an increase of 9% against the previous year. Over the period under review, the market hit record highs at $3.7B in 2008; however, from 2009 to 2019, consumption remained at a lower figure.

Consumption by Country

The countries with the highest volumes of consumption of railway or tramway track construction material of iron or steel in 2019 were France (463K tonnes), Italy (434K tonnes) and Germany (369K tonnes), together accounting for 40% of total consumption. These countries were followed by the UK, Poland, Austria, Spain, the Netherlands, Romania, Belgium, the Czech Republic and Luxembourg, which together accounted for a further 52%.

From 2007 to 2019, the most notable rate of growth in terms of consumption of railway or tramway track construction material of iron or steel, amongst the main consuming countries, was attained by France, Italy, and Austria, while consumption of railway or tramway track construction material of iron or steel for the other leaders experienced more modest paces of growth.

In value terms, the largest iron and steel railway construction materials markets in the European Union were France ($601M), Italy ($506M) and Germany ($333M), together accounting for 47% of the total market. These countries were followed by Spain, Austria, Poland, the Netherlands, Romania, Belgium, Luxembourg, the Czech Republic and the UK, which together accounted for a further 43%.

In 2019, the highest levels of per capita consumption of railway or tramway track construction material of iron or steel were registered in Luxembourg (108 kg per person), followed by Austria (30 kg per person), Belgium (9.15 kg per person) and the Netherlands (8.78 kg per person), while the world average per capita consumption of iron and steel railway construction materials was estimated at 6.13 kg per person.

From 2007 to 2019, the average annual growth rate of the per capita consumption of railway or tramway track construction material of iron or steel in Luxembourg totaled -3.5%. In the other countries, the average annual rates were as follows: Austria (+14.8% per year) and Belgium (+0.2% per year).

Production in the EU

In 2019, production of railway or tramway track construction material of iron or steel increased by 1.4% to 3.2M tonnes, rising for the second consecutive year after two years of decline. Overall, production, however, continues to indicate a relatively flat trend pattern. In value terms, production of railway or tramway track construction material of iron or steel expanded remarkably to $5.4B in 2019 estimated at export prices.

Production by Country

The countries with the highest volumes of production of railway or tramway track construction material of iron or steel in 2019 were Austria (718K tonnes), Poland (406K tonnes) and Spain (387K tonnes), with a combined 48% share of total production.

From 2007 to 2019, the most notable rate of growth in terms of production of railway or tramway track construction material of iron or steel, amongst the main producing countries, was attained by Poland, while the production of railway or tramway track construction material of iron or steel for the other leaders experienced more modest paces of growth.

Imports in the EU

For the third consecutive year, the European Union recorded growth in overseas purchases of railway or tramway track construction material of iron or steel, which increased by 4.9% to 1.4M tonnes in 2019. Total imports indicated a temperate increase from 2007 to 2019: its volume increased at an average annual rate of +2.2% over the last twelve-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2019 figures, imports increased by +32.8% against 2016 indices. Over the period under review, imports attained the peak figure in 2019 and are likely to see gradual growth in years to come. In value terms, imports of railway or tramway track construction material of iron or steel dropped to $1.3B (IndexBox estimates) in 2019.

Imports by Country

In 2019, Germany (314K tonnes), distantly followed by Italy (173K tonnes), France (155K tonnes), the UK (118K tonnes), Poland (88K tonnes) and Belgium (86K tonnes) were the major importers of railway or tramway track construction material of iron or steel, together creating 69% of total imports. The Czech Republic (59K tonnes), Sweden (55K tonnes), Spain (55K tonnes), the Netherlands (35K tonnes), Hungary (33K tonnes) and Portugal (27K tonnes) occupied a minor share of total imports.

From 2007 to 2019, the most notable rate of growth in terms of purchases, amongst the leading importing countries, was attained by Italy, while imports for the other leaders experienced more modest paces of growth.

In value terms, Germany ($271M), Italy ($201M) and France ($126M) appeared to be the countries with the highest levels of imports in 2019, with a combined 45% share of total imports.

Import Prices by Country

The import price for railway or tramway track construction material of iron or steel in the European Union stood at $993 per tonne in 2019, falling by -11.2% against the previous year. Over the period under review, the import price showed a mild curtailment.

There were significant differences in the average prices amongst the major importing countries. In 2019, the country with the highest price was Hungary ($1,402 per tonne), while the UK ($655 per tonne) was amongst the lowest.

From 2007 to 2019, the most notable rate of growth in terms of prices was attained by Hungary, while the other leaders experienced a decline in the import price figures.

Source: IndexBox AI Platform

tariffs

Court of International Trade Receives its First Complaint Against Section 301 China Tariffs

On September 10, 2020, HMTX Industries LLC, along with Halstead New England Corporation, and Metroflor Corporation (importers of vinyl tile) filed a complaint (Ct. No. 20-00177) at the Court of International Trade (CIT) challenging both the substantive and procedural processes followed by the United States Trade Representative (USTR) when instituting Section 301 Tariffs on imports from China under List 3.

The List 3 tariffs went into effect on September 24, 2018. This is the first challenge of its kind filed against the administration’s use of Section 301 Tariffs in the ongoing trade war between the United States and China.

The complaint alleges that USTR’s institution of List 3 tariffs violated the Trade Act of 1974 on the grounds that USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that List 3 tariffs were instituted beyond the 12-month time limit provided for in the governing statute (19 U.S.C. § 2414). The complaint also argues that the manner in which in the List 3 tariff action was implemented violated the Administrative Procedures Act (APA).

According to the complainants, USTR failed to provide adequate opportunity for comments, failed to consider relevant factors when making its decision (e.g. no analysis of increased burden on U.S. commerce from unfair trade practices), and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of List 3.

______________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

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.

foundational technologies

BIS Seeks Comments on Identifying “Foundational Technologies”

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) recently published an Advanced Notice of Proposed Rulemaking (“ANPRM”) regarding the identification and review of controls for certain “foundational technologies.” This ANPRM represents another step toward implementation of the “emerging and foundational technology” provisions set forth in the Export Control Reform Act (“ECRA”) of 2018, which has been slow to get off the ground. Section 1758 of the ECRA requires that “foundational technologies” be identified and that BIS establish appropriate controls for that technology under the Export Administration Regulations (“EAR”).

The ANPRM solicits public comments concerning the definition of and criteria for identifying “foundational technologies” in order to apply controls to “emerging technologies” and “foundational technologies” which are essential to U.S. national security, pursuant to the ECRA. Specifically, BIS is asking interested parties to submit comments by October 26, 2020, responding to the following topics:

-How to further define foundational technology to assist in the identification of such items;

-sources to identify such items;

-criteria to determine whether controlled items identified in AT level Export Control Classification Numbers (ECCNs), in whole or in part, or covered by EAR99 categories, for which a license is not required to countries subject to a U.S. arms embargo, are essential to U.S. national security;

-the status of development of foundational technologies in the United States and other countries;

-the impact specific foundational technology controls may have on the development of such technologies in the U.S.;

-examples of implementing controls based on end-use and/or end-user rather than, or in addition to, technology-based controls;

-any enabling technologies, including tooling, testing, and certification equipment, that should be included within the scope of a foundational technology; and

-any other approaches to the issue of identifying foundational technologies important to U.S. national security, including the stage of development or maturity level of a foundational technology that would warrant consideration for export control.

BIS explained that it does not seek to expand jurisdiction over technologies that are not already subject to the EAR. BIS, through an interagency process, seeks to determine whether there are specific foundational technologies that warrant more restrictive controls.  Interested parties may submit comments through the federal rulemaking portal (regulations.gov) or via mail to BIS.

Husch Blackwell encourages clients and companies to review the recent ANPRM for applicability.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

agriculture

USTR, DOC, and Department of Agriculture Issue Plan to Investigate Foreign Imports of Certain Perishable Produce

On September 1, 2020 the Office of the United States Trade Representative (USTR), Department of Agriculture, and Department of Commerce issued a 32-page report outlining the Trump Administration’s plan to address increased foreign imports of perishable fruits and vegetables. Following the public hearings held in August, the Administration published this report in hopes to open a dialogue with senior Mexican Government officials over the next 90 days regarding specific produce.

The USTR requested that the U.S. International Trade Commission (ITC) formally initiate an investigation under Section 201of the Trade Act of 1974 (Global Safeguard Investigation) with respect to imports of blueberries. Additionally, USTR intends to request that the ITC monitor and investigate imports of strawberries and bell peppers, which could lead to an expedited Section 201 investigations later this year.

The USTR is separately pursuing negotiations with the Mexican government to address U.S. industry concerns over imports of strawberries, bell peppers, and other perishable products. Section 201 investigations occur when a country experiences an unexpected surge in the import quantity of a certain product. The most recent Section 201 investigation was used to limit imports of solar panels and washing machines in 2018.

Other initiatives include the Department of Commerce improving communication with U.S. farmers responsible for growing the subject produce and assisting them in understanding trade remedy laws and procedures.

Similarly, the Department of Agriculture will develop a market promotion strategy for domestically produced produce and work with producers to maximize the use of existing agriculture programs. USTR, the Department of Commerce, and the Department of Agriculture will establish an interagency working group to monitor seasonal and perishable fruit and vegetable products, coordinate as appropriate regarding future investigations and trade actions, and provide technical assistance to Congress in developing legislation on this issue.

The interagency announcement regarding imports of certain fruits and vegetables follows media reports that U.S. farmers are on track to receive a record $37.2 billion in subsidies from the government this year.

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Stephen Brophy is an attorney in Husch Blackwell LLP’s Washington, D.C. office focusing on international trade.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington, D.C. office.

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.

AD/CVD

Commerce Proposes Modifications to AD/CVD Laws to Strengthen Enforcement

The U.S. Department of Commerce (“Commerce”) announced in a Federal Register notice that it is proposing significant changes to its antidumping and countervailing duty regulations. The last time such sweeping changes were undertaken were in 1997 after the WTO went into effect. Commerce is requesting comments on the proposed changes by September 14, 2020.

Among the most significant changes outlined in Commerce’s proposal are the changes to its conduct of scope proceedings, which determine whether a certain product is subject to the scope of an AD or CVD order; and to circumvention proceedings where importers are alleged to be avoiding duties, often by using components from the subject country to assemble the product in another country not subject to the relevant AD/CVD order. Currently, both types of proceedings are governed by the same set of regulations in 19 C.F.R. §351.225. Commerce’s proposal would separate the two proceedings into unique regulatory frameworks.

The proposed modifications also affect the following areas of analysis which are often contentious in the context of scope rulings and circumvention proceedings:

Proposed Changes to Scope Rulings/Proceedings

-The proposed changes to the scope would “codify and clarify” Commerce’s analysis with respect to mixed media products that involve commingled goods where a single item in a commingled product may be subject to an AD/CVD order. Mixed media products generally refer to a set of packaged goods that contain multiple products (g. a plastic toolbox with nails, screws, a level, a hammer, and a couple of screwdrivers where only the nails and screws are potentially subject to an AD/CVD order and the remaining items when examined individually are not).

-The changes would codify Commerce’s longstanding “substantial transformation” test or analysis, which is used to determine the country of origin of a product or products.

-The changes would codify the analytic framework in which the primary analysis in any scope inquiry is the language of the scope itself.

Proposed Changes to Circumvention Proceedings

-The proposed changes to the circumvention regulations would grant Commerce the authority to self-initiate anti-circumvention proceedings without the filing of a request or petition by the U.S. domestic industry.

-The changes would enhance Commerce’s ability to make circumvention determinations that would apply to the exporting country as a whole rather than on a company-specific basis.

-The changes would codify Commerce’s current practice with respect to various issues including the valuation methodology for parts and components; the criteria for determining whether a product is “later developed,” and the criteria for determining whether any alterations to the merchandise at issue are “minor.”

Proposed Changes to Both Scope Proceedings and Circumvention Proceedings

-The proposed regulations would also make other changes, including modifications of the deadlines in scope and circumvention proceedings and modifications to the information a party must provide in any request for initiation of a scope or circumvention proceeding.

-Perhaps most importantly, the proposed modifications to both the scope and circumvention regulations would retroactively impose duties on any unliquidated entries, dating back to the date on which the preliminary determination was issued during the original investigation, rather than to the date that the scope or circumvention inquiry was initiated, as is the case under the current regulations.

-The proposal also creates a new regulation to address procedures and standards related to Commerce’s consideration of covered merchandise referrals from Customs and Border Protection (“CBP”) in Enforce and Protect Act (“EAPA”) investigations.

Proposed Changes to New Shipper Reviews

-In addition to the proposed scope changes, Commerce also has proposed major changes with respect to new shipper reviews. These include: (1) requiring more detailed information at the outset of a request for a new shipper review so that Commerce can “expend its resources in conducting a new shipper review only where there is a reasonable likelihood that there ultimately will be a bona fide sale for Commerce to review;” (2) limit requests for new shipper reviews to only those producers or exporters who can demonstrate the existence of a bona fide sale by providing certain documentation, including a certification from an unaffiliated U.S. customer that it did not purchase subject merchandise from the relevant producer or exporter during the period of investigation and that the customer will provide information requested by Commerce. The proposed regulations would also codify some of the factors Commerce will consider in determining if a sale is bona fide.

Proposed Other Changes Affecting AD/CVD Procedural Filings

-Other changes in the proposal include allowing Commerce to impose a certification requirement on importers to ensure subject merchandise is properly classified as subject to AD/CVD duties.

-Commerce also proposes to amend the regulations governing reimbursement certifications to account for updated procedures.

-Commerce also proposes to set a deadline for parties to comment on industry support in investigations.

Additionally, the proposed rules make modifications to entry of appearance filing requirements and clarify or codify practices which Commerce has adopted as a matter of practice. For example, Commerce proposes to amend the rules to reflect that an interested party that submits a scope ruling application does not need to file an entry of appearance. Similarly, for circumvention inquiries, Commerce proposes to amend the rules to reflect that an interested party that submits a request for circumvention inquiry need not file an entry of appearance.

The proposed changes to the AD/CVD laws, especially the changes to scope and circumvention proceedings and new shipper reviews, will make it more difficult for foreign exporters and U.S. importers to reduce or eliminate potential antidumping and countervailing duties.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Stephen Brophy is an attorney in Husch Blackwell LLP’s Washington, D.C. office focusing on international trade.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.