First published by the Journal of Commerce – April 2017
The first tangible indications of what trade policy might actually look like under the Trump Administration have been released. After excoriating NAFTA as the “worst trade deal ever” and quickly withdrawing the U.S. from the TransPacific Partnership, which was already dead, we are now starting to see some actual language – and it will be disappointing to the diehards! First came the well-covered in the general press eight (8) page letter to Congress about NAFTA. It does contain some interesting provisions, but nothing revolutionary, at least not yet!
The NAFTA letter contains comments about restricting federal procurement to U.S. suppliers. Obviously, whoever drafted it ignored that preference is only extended to non-U.S. content (not the location of the supplier) if the origin of the inputs (raw materials, components, etc.) is from a country with which the U.S. has a free trade agreement. What was also overlooked is if the rules are changed, how long will it take other countries to act for the benefit of their own companies and against the interests of Americans bidding on foreign projects?
Another topic in the NAFTA letter was the rules of origin. One would be hard pressed to find experienced traders who argue the rules of origin do not need simplification and modernization. The challenge is how? From the beginning, the rules of origin have been too complicated. Many companies take advantage of the reduction in trade barriers by entering new markets, but without seeking the corresponding free rate of duty simply because of how costly it is to be compliant. Also, among the missing topics is eCommerce and the myriad of issues it alone raises.
The other topic getting a lot of general press coverage regarding the NAFTA letter is dispute resolution. This is another context in which the new administration does not seem to be able to find a consistent position. First came, we’re not sure we like the World Trade Organization’s methodology, now we get we don’t like the NAFTA dispute resolution mechanism. We prefer the process provided by the WTO!
The general consensus is this letter will be finalized only once Robert Lighthizer is confirmed as U.S. Trade Representative. Why then was the letter distributed to Congress now? It certainly did not trigger the 90 day consultation period required by law. When will it be published so we can all read it for ourselves? What will the final version look like?
Showing a questionable understanding of current practices are the Executive Orders (EO) issued on Friday, March 31st. The first is yet to be published, but the two together are touted as cracking down on trade cheaters. This first EO is said to call for an investigation which will focus on the causes of the U.S. trade deficit with China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, Korea, Malaysia, India, Thailand, France, Switzerland, Taiwan, Indonesia and Canada. The investigation will go through the U.S. trade relationship country-by-country and look to identify root causes in such areas as cheating, lax enforcement and currency misalignment (previously called currency manipulation). What will result and how it will differ from reports already routinely prepared by federal agencies are all open questions.
The second EO issued on March 31st has been published and can be found here EO re ADD/CVD Enforcement Enhancement. It focuses on antidumping cases. Being a very short two plus pages, it calls for “appropriate” bonding provisions based on risk assessment. What the EO does not make clear is what that means or the form the “other legal measures” and “other appropriate enforcement measures” will take.
Secretary of Commerce Ross was on one of the Sunday news shows and is quoted as saying: “[w]hat had happened was that the very clever importers, who are beating the laws in a lot of ways, set up shell companies—those do the technical importing. Then when we levee a fine there’s no financially responsible party there. So this’ll call for a process of bonding or putting up letters of credit or cash to make sure that when we levee a fine, we collect it,” Apparently Sec. Ross does not realize that bonds only secure duty payments and the unpaid antidumping and countervailing duty amounts are duties, not fines. Further, there is no methodology currently in place that facilitates the use of a bond to secure future potential violations which take the form of penalties. Apparently Sec. Ross has also overlooked that much of the $2.3 billion related to antidumping and countervailing which remains unpaid is actually quote old and tied up in three cases, all of which together represents an importing process that long ago matured to bonds subject to separate and greater underwriting scrutiny, which are fully collateralized by letters of credit.
This EO goes on to call for Customs and Border Protection (CBP) to develop and implement a “strategy and plan for combating violations of United States trade and customs laws for goods and for enabling interdiction and disposal, including through methods other than seizure, of inadmissible merchandise entering through any mode of transportation…” It would seem that Sec. Ross would interpret this language to mean we expect CBP will inspect more shipments where there is reason to be suspicious!
Oddly out of place is a provision dealing with intellectual property rights enforcement specifically as relates to counterfeit goods and, in particular, to how information about those counterfeit products can be shared with rights holders.
The Attorney General is also called upon to give a high priority to prosecution of trade law violations and provide recommended prosecution practices.
These provisions alone should set off red flags for all traders – this can only mean one thing – more enforcement, perhaps at the expense of trade facilitation, and impacting many product lines, especially since antidumping and countervailing duty are apply to many different products from many different countries. The EO goes on to require CBP to come up with its plan within 90 days, so we should know more by the end of June/early July.
For experienced international traders, they understand that asking CBP to do this much more really means give the agency more staffing, more equipment and more money. On top of that, if the goal is to have compliant trade (forget whether we call it fair trade or free trade), that requires cooperation among countries. Yes, there are cheaters out there, no question, and some of them may actually be American companies. However, the vast majority of American importers are naive (or maybe totally confused is more accurate) about the relevant laws and regulations, don’t know what questions to ask and even if they know the right questions, they don’t know to whom to turn. CBP publishes vast amounts of information about its rules and regulations on its website. So does Commerce, and other agencies provide other information. Despite that, unless you know what you are doing, you really don’t know which questions to ask. Never mind that other countries provide all sorts of educational support and financial assistance to their companies. When is the American government going to stop blaming everyone else and start taking real and tangible steps to present information to novice and less experienced importers and exporters in a way that is easy to understand and implement? Only when that happens will we see American importers and exporters on a level playing field with their international competitors.