April 19, 2017
From NAFTA to Buy American, Trump Looks to Make a Mark on Trade
Candidate Trump called NAFTA a “disaster” and made “bad” trade deals a focal point of his campaign. As president, Trump is now having to deal with the challenge of carrying out his campaign promises on trade without inviting retaliation from U.S. trading partners that could devolve into an outright trade war.
President Trump signed two Executive Orders on March 31 that seek a review of trade deficits, unbalanced free trade deals, lax enforcement, and unfair WTO constraints.
In the first, President Trump asked Commerce Secretary Wilbur Ross and the USTR WH Director of the National Trade Council, Peter Navarro, to report by June 30th on the “trade abuses” other nations undertake that create U.S. trade deficits. “The Omnibus Report on Significant Trade Deficits” will examine trade deficits “country by country and product by product” to assess the extent they are caused by “cheating or inappropriate behavior,” according to Secretary Ross.
The second Executive Order, announced the creation of a report, also by June 30th, to strengthen enforcement of existing countervailing duties and anti-dumping penalties against foreign products. Peter Navarro, director of the White House National Trade Council said that this report would address the under-collection of these duties and penalties. Anti-dumping penalties target exporters that sell goods below the cost of production and countervailing duties are intended to compensate for foreign-government subsidies to producers. Uncollected penalties total some $2.3B and the order requests a plan by DHS and other agencies to collect these penalties. The report is also to address the loss of intellectual property (IP).
Additionally, the president signed an Executive Order yesterday on Buy American, Hire American. The order requires all agency heads to assess their compliance with Buy American Laws; the use of waivers and their impact on jobs and manufacturing; and to develop and propose policy changes that would maximize the use of materials and products manufactured in the U.S. The order also requires the Secretaries of State, Labor, Homeland Security, and the Attorney General to issue guidance to prevent visa fraud or abuse that would negatively impact U.S. workers, as well as suggesting reforms to the H-1B visa programs.
The White House also circulated on Capitol Hill draft objectives for NAFTA negotiations with Canada and Mexico. The document describes in significant detail several trade negotiating objectives to be achieved in the new negotiations. Interestingly, it includes language that reflects some of the provisions of the Trans Pacific Partnership agreement from which the President has withdrawn. It was signed by Stephen Vaughn, Acting USTR.
The NAFTA negotiating objectives include the following:
- Opening the door to “Buy American” provisions in government procurement
- Implementing safeguard mechanisms against import surges
- Strengthening labor and environment rules – seven objectives speak to this
- Revising rules of origin to avoid misapplication of preferential duty rates
- Eliminating sanitary-phytosanitary measures that are not based on sound science
- Eliminating non-tariff trade barriers and technical barriers to trade
- Protecting intellectual property rights
- Expanding market opportunities for trade in services
- Reducing barriers to U.S. investment in Mexico and Canada
- Improving procedures to resolve investor-state disputes
- Deterring the implementation of rules that impede digital trade in goods and services
- Preventing trade distortions and unfair competition favoring state-owned and state-controlled enterprises
- Preserving the ability of the U.S. to enforce its trade remedy laws, including its anti-dumping laws
Significantly, the objectives do not include a focus on currency manipulation. There is also no language that would use the U.S. trade deficit measure as a yardstick for punitive action by the U.S. This issue has been discussed by the President and others within the trade architecture of the Administration.
While the draft document does not propose to replace the original agreement, it does open most of the deal to renegotiation. The White House is reported to have backed away from this draft objectives document as criticism mounted from Democrats who were not happy with a perceived softer stance on trade from the White House. The WH spokesman, Sean Spicer, stated that this document doesn’t reflect Trump’s goals for the talks. “That is not a statement of administration policy,” Spicer told reporters. “That is not an accurate statement of where we are at this time.”
Finally this past week, President Trump met with Chinese President Xi Jinping to discuss many aspects of this most important bilateral relationship. Principal among these topics was trade. Commence Secretary Ross said that the two nations agreed to a “100-day plan” to address our trading relationships. This plan is to include “way-stations of accomplishments” according to Ross.
Clients should view these developments with both a watchful eye toward preserving those arrangements and supply chains that have benefited from NAFTA and as an opportunity to engage with the Administration and Congress to improve the trading arrangements where it will benefit U.S. interests. One significant feature of the reports due in 90 days and the 100-day plan for negotiations with China is that these timelines are much more aggressive than the traditional, steady review periods for existing agreements. We also note that without a confirmed USTR in place yet, the Administration probably will have to adjust its aggressive schedule a bit. The USTR carries most of the statutory authority to represent the United States in trade negotiations, but we expect that Commerce Secretary Ross and White House Advisor Navarro will assert their positions to accomplish the goals set forth.