US Looks Towards System-Shaping Trade Agenda as New Year Begins

18 January 2018

US trade negotiating activity is picking up as the new year gets underway, with some meetings already taking place in early January and others planned for later this month. Separately, a series of reports from domestic investigations on select trade issues are due to be released within the first weeks of this year, with potentially significant implications for Washington’s trading relationships. 

Talks are due to resume next week on the modernisation of the North American Free Trade Agreement (NAFTA), the two-decade-old deal which sets the rules for the trading relationship between Canada, Mexico, and the United States.

Negotiators are due to meet in Montreal, Canada, from 23-28 January for a sixth round of talks. At their most recent round in November, they continued work across several areas, without reporting any major breakthroughs, according to a trilateral statement released afterward. (See Bridges Weekly, 23 November 2017)

The NAFTA modernisation negotiations began in August, and after some quick advances such as the substantive conclusion of a competition chapter, the pace slowed significantly as officials began tackling more challenging areas and dealing with more contentious proposals.

For example, the US’ proposals to scrap Chapter 19 dispute settlement on trade remedies and to increase the threshold of US content in automobiles required to benefit from preferential treatment under NAFTA has drawn public criticism from its negotiating partners. (See Bridges Weekly, 19 October 2017)

Mexico is due to hold its general election in July, with that political dynamic already being cited by leaders as a possible reason to extend the NAFTA talks further.

The target date set by the three parties for concluding a deal has already been moved from the original end-2017 date to the end of the first quarter of 2018.

“I can tell you I’m not sure about world markets, but I can tell you I think the American market would go up if I terminated NAFTA and renegotiated a new deal,” US President Donald Trump told the Wall Street Journal in a wide-ranging interview published on 14 January, while saying that he prefers not to terminate the deal unless negotiations fail.

As for the timing, he told the newspaper that “I’m leaving it a little flexible because they have an election coming up. So I understand a lot of things are hard to negotiate prior to an election,” ostensibly referring to the Mexican election in July.

The suggestion of having a more “flexible” negotiating timeframe was welcomed by Canadian Foreign Minister Chrystia Freeland shortly thereafter. “I thought that was a sensible suggestion from [Trump]. I think all of us are mindful of the Mexican elections,” she said last week, according to comments reported by Reuters.

The US will also be gearing up for its midterm elections in early November, which will see the full House of Representatives along with 34 of the Senate’s 100 seats up for a vote, along with other positions at the state and local levels. The future of NAFTA could prove to be a challenging issue to address on the campaign trail, with the midterms serving as one of the early tests for the current Republican administration and its supporters.

Trump told farmers last week that NAFTA remains a major priority, along with noting that his administration continues its examination of existing US trade deals “to make sure they are fair and reciprocal,” particularly in areas such as agricultural trade and manufacturing.

“When Mexico is making all of that money, when Canada is making all of that money, it’s not the easiest negotiation.  But we’re going to make it fair for you people again,” said Trump in reference to NAFTA, while speaking to the American Farm Bureau Annual Convention in Nashville, Tennessee on 8 January.

KORUS meetings

Negotiators from the US and South Korea met in Washington in early January to discuss potential modifications to their existing trade deal, known also as the KORUS FTA. The accord has been in force since March 2012.

The 5 January meeting included discussions on automobiles and their component parts, a sector that was also a key sticking point during the work to develop the current deal in place, according to a statement published by the Office of the US Trade Representative .

Last year, US Trade Representative Robert Lighthizer requested that a special session under the KORUS “joint committee” begin meeting to address what the US deemed was a “significant trade imbalance” with the Asian country. Two “special sessions” were held last year, and Seoul officials have indicated that they would also like to see some changes to the deal to improve its “mutual benefits,” and have since referred to an interest in changes to the investor-state dispute settlement mechanism as one example. (See Bridges Weekly, 12 October 2017)

While negotiators have not yet confirmed when they will meet again, media reports suggest this could happen within the coming weeks.

Investigations update

Also on the docket are the next steps for various trade remedy investigations which the US executive branch launched last year. One of these is a “Section 232” investigation on the national security implications of steel imports, with Commerce Secretary Wilbur Ross confirming that he submitted the relevant report to Trump on 11 January.

Trump has 90 days to decide what to do in response to its contents, which have not yet been made public. A report on a separate Section 232 investigation involving aluminium is expected within days. Both are being watched closely for what they could mean not just for China, a top global producer, but also for other trading partners who have previously expressed concerns over the use of a national security-focused trade investigation and the trade actions which could result from that.

A decision in a Section 201 safeguard investigation on imported solar products is due from Trump by 26 January, following the submission of reports from the US International Trade Commission. Another decision is on the horizon in the coming weeks on a case involving washing machine imports, which could affect US trade ties with South Korea.

WTO: Ambassador nominee hearing

The Senate Finance Committee held a long-awaited hearing on 17 January on the nomination of Dennis Shea, vice chairman of the United States-China Economic and Security Review Commission, to be the US’ Ambassador to the World Trade Organization, a post that has been vacant throughout the first year of the Trump administration. Shea was nominated in July.

“Too many countries fail to live up to their WTO obligations without any consequence. Too many, including some of the world’s wealthiest nations, seek exemptions from these obligations by claiming status as developing countries. The WTO has shifted from a forum with a focus on facilitating negotiation among sovereign states to a litigation-centered institution,” Shea told lawmakers in his opening testimony on Wednesday.

“If confirmed, I expect that institutional reform at the WTO will be a major part of the US Agenda,” Shea said, referring to a recent US proposal on transparency and improving WTO member notifications as one example.

Shea’s nomination was one of two that were subsequently put on hold on Wednesday by Tim Scott, a Republican senator from South Carolina, who said that he needed more clarity from US Trade Representative Robert Lighthizer on certain trade questions that the senator has attempted to raise previously. He did not clarify what those questions were.

While next steps for multilateral negotiations are still unclear in the wake of the WTO ministerial conference in December, meetings are planned during this first quarter for the various group initiatives unveiled at the conference. The US has signed on to be part of a group pursuing “exploratory work” towards launching formal WTO talks on electronic commerce among interested parties, with plans to begin meeting by the end of March or sooner. (See Bridges Daily Update, 14 December 2017)

Meanwhile, the US is continuing to block the start of selection processes to fill the vacancies on the WTO’s Appellate Body. While normally the organisation’s highest court has seven members, three of those seats are now vacant. A fourth Appellate Body member is due to see their first term expire in September, and if not reappointed this would create another vacancy on the court. Whether that issue can be resolved in the new year remains to be seen. (See Bridges Weekly, 2 November 2017)

State of the Union, TPA renewal

Trump is due to give his first State of the Union address to Congress on 30 January, which analysts expect will include some mention of trade. The speech, which will allow Trump to unveil his desired legislative agenda to lawmakers, will come just days after the US president visits the Swiss city of Davos for the World Economic Forum ‘s Annual Meeting, where he is also due to give remarks. The last US leader to attend that high-level event while in office was Bill Clinton in the year 2000. (For more on Davos, see related story, this edition)

The Office of the US Trade Representative is due to release its annual Trade Policy Agenda on 1 March, in line with federal statute, which will outline “the trade policy objectives and priorities of the United States for the year, and the reasons therefore” along with planned steps to meet these goals, among other information.

Aside from the negotiations with international partners and the domestic-level investigations, another key deadline looming over US trade circles is 1 July 2018, which is the date for renewing Trade Promotion Authority (TPA). That legislation confers the US executive branch with the authority to negotiate international trade deals, which would otherwise be the responsibility of Congress.

It also sets out negotiating objectives, requirements on transparency, and what would be required for a completed international accord to be voted on by Congress in a straight “up or down” vote, rather than being opened up for amendments.

The current version of TPA is known formally as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, and was signed into law by then-President Barack Obama in June of that year following a long and contentious legislative process. (See Bridges Weekly, 2 July 2015)

The 2015 legislation was set in place for an initial three years, with the possibility of a one-time extension for an additional three years, subject to certain requirements.

This includes a series of steps taken by the US executive to notify Congress and different related committees of their interest in renewal, along with updating on the negotiating state of play. It also requires that neither legislative chamber votes to “disapprove” extending TPA, according to analysis by Jeffrey Schott of the Peterson Institute for International Economics. This process would need to start by 1 April, at latest, with set dates and deliverables from then through 1 July.

ICTSD reporting; “Canada welcomes Trump talk of possible NAFTA deadline extension,” REUTERS, 12 January 2018; “Transcript of Donald Trump Interview With The Wall Street Journal,” WALL STREET JOURNAL, 14 January 2018; “Bumpy road ahead for S. Korea-U.S. FTA renegotiation: senior official,” YONHAP, 15 January 2018; “The ITC’s New Solar Report Could Bolster Trump’s Broader Trade Agenda,” GREENTECH MEDIA, 5 January 2018; “Trump Must Decide on Tariffs for Imported Washing Machines,” NEW YORK TIMES, 21 November 2017; “Republican senator puts hold on Trump's trade nominees,” THE HILL, 17 January 2018.

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