Also:
* The Group of 20 Summit meeting in Rome approves the OECD-brokered 15% minimum tax, a boost for Biden but yet to be endorsed by member-nation legislatures, including Congress.
* Biden attends virtually the US-ASEAN and East Asia Summits, ending a three-year US presidential absence.
* Canada and Mexico strongly protest Democrats’ proposed Build Back Better e-car subsidies.
The November 1, 2021 trade report with L.C.
The US and EU finalized a deal on October 30th to lift the US Section 232 tariffs of 25% on steel and 10% on aluminum imports from the EU. The agreement was formally announced the following day by US president Joe Biden and Ursula von der Leyen, president of the EU Commission.
Section 232 tariffs are those levied allegedly to protect industries crucial to national defense. President Trump levied the metal tariffs against hostile and friendly nations alike, despite the fact that the Pentagon denied they were necessary for national defense. But rather than lifting the tariffs altogether, the current US-EU deal will replace them with tariff-rate quotas (TRQs), which will place an upper limit on the amount of both metals that can enter the US.
For its part, the EU agreed to lift the retaliatory tariffs against US imports that were scheduled to go into effect on December 1st.
The announcement was absent many details, in particular, plans to address Chinese overcapacity and “global sustainable steel” (e.g., making the steel sector less “carbon-intensive”).
As EU Trade Commissioner Valdis Dombrovskis told reporters, the deal is a “pause” in the dispute, “a major step in the right direction… but it’s really not the final destination, which should be complete withdrawal of the tariffs.”
As for the key question of the quota level, the European press puts the level around what EU exports to the US were in 2015-17, that is, pre-tariff. That would be a victory for the EU and is in line with what von der Leyen said in her joint appearance with Biden to announce the deal: “It will allow… transatlantic trade in steel and aluminum between us to come back to the levels recorded before these tariffs were put in place”
Aluminum
For the aluminum deal, it was reported that the quota would be around 18,000 tons of primary and 366,000 tons of semi-finished product, which EU officials said were levels in line with 2018-2019 US imports – which had risen despite the tariffs. There was little commentary specifically on the aluminum deal; it is a much smaller EU export to the US than steel. Nevertheless, a European Aluminum association official said earlier last week that the EU aluminum industry opposes a TRQ arrangement and is demanding that the US tariffs – and thus the EU retaliatory tariffs – simply be removed.
The Biden administration clearly wants to call attention to the tariff agreement with the EU for domestic political reasons. The fact sheet was rather short for such a supposedly major international agreement. In portraying the agreement, US officials including the president are trying to shift the focus from tariffs to the excess-capacity and “sustainability” commitments, weak as those commitments are. The White House is worried that businesses will consider the deal to be still too protectionist whereas steel producers and unions will consider it not protectionist enough.
CAMMU disappointed
The Coalition of American Metal Manufacturers and Users (CAMMU) released a statement saying, “it is disappointing that the agreement will not completely terminate these unnecessary trade restrictions on our allies. CAMMU is concerned that replacing the tariffs with a TRQ will hurt its members because the threat of tariff reinstatement looms with the surge in steel and aluminum demand expected when the bipartisan infrastructure bill passes. This type of government restriction on raw materials and intervention leads to market manipulations and allows for gaming of the system that could put this country’s smallest manufacturers at an even further disadvantage…. The US should immediately begin negotiations to lift these damaging tariffs on our other close allies and trading partners. US steel- and aluminum-using manufacturers cannot secure the raw materials that they need and at competitive prices, and are losing business to competitors in other countries.”
Other negative voices pointed out that it took too long for the Biden administration to reach this deal, let alone actually end the Trump tariffs – especially given the damage done to domestic manufacturers, consumers, and US exporters, at a time when supply chains are constrained and inflation is mounting.
G20 leaders endorse global tax floor
This year’s G20 Summit taking place in person in Rome on October 30-31st centered about discussion of measures addressing climate change and the pandemic. But it was the occasion for one major trade development: The US announced after the first plenary session that the leaders “all came out in support of a global minimum tax” – a move seen as a victory for President Biden, one that the White House believes will make it easier to get Congress to approve raising the US corporate tax rate.
US officials told reporters they think the international agreement will enable the US government to raise at least an additional $60 billion in tax revenue each year – largely because US companies won’t have an incentive to move abroad to lower-tax venues.
The leaders’ endorsement of the global minimum tax – of 15% – is not the end of the story. Every country that pledged not to lower taxes below the minimum has to go through its own domestic procedures since tax policy is a sovereign responsibility. There’s no guarantee all countries will manage to do this, or that current governments won’t be replaced in the future by ones that reject the agreement on a minimum.
US president back at Asian summits
President Biden participated virtually in the annual US-ASEAN Summit and the 16th annual East Asia Summit, on October 26-27th. This was received as a welcome contrast to former president Donald Trump, who had skipped the past three meetings. But the US president came up short, thus far, on his call for developing an “Indo-Pacific economic framework” because the US stands apart from the array of regional trade networks that have emerged without the US – the CPTPP, RCEP, bilateral free trade agreements, and various digital economy agreements.
Beijing seems now to be trying to get the jump on Washington. Chinese media are reporting that Xi Jinping says “China has decided to apply to join the Digital Economy Partnership Agreement. (DEPA)” That could be another effort to muscle in on trade deals before the US does — on the model of China’s CTPTT bid.
The DEPA was formed earlier this year by Singapore, New Zealand, and Chile and is one of several digital trade deals involving Asia-Pacific countries. But the DEPA has special significance because it has been considered a possible “core” if the US decides to move ahead to create a broader Asia Digital Trade Agreement. South Korea has already completed preparations to begin accession negotiations with DEPA members.
China, however, has been cracking down on its digital economy, so it isn’t clear if it would be willing to make reforms in order to join DEPA or instead would insist that DEPA be watered down. The South China Morning Post reported on October 29th that “A new set of draft rules released… by the Cyberspace Administration of China… proposed additional requirements for businesses wanting to transfer Chinese data abroad, as Beijing seeks to tighten its grip on domestic data. The draft regulations [likely to take effect in late November] are set to have a far-reaching impact on the overseas listings of Chinese companies, and even day-to-day operations of multinationals operating in the country.”
Democrats’ Build Back Better e-car subsidy plan opposed by Canada and Mexico
USMCA developments this week included a new dispute — a challenge from Canada and Mexico to the Biden plan to provide incentives — i.e., subsidies — to buyers of certain US-made electric cars. The incentives are included in the president’s “Buy Back Better” (BBB) legislative package, whose fate in Congress remains uncertain at this writing.
The latest version released on October 28th would give $4,500 in additional credits to purchasers of vehicles made in the US by unionized workers — in addition to the $7,500 federal subsidy already given to buyers of any e-vehicle, as well as an additional $500 more if the battery pack is US-made.
It’s not clear whether these exact subsidies will be in a final BBB package nor whether the package will pass Congress. The huge incentives for e-vehicles indicate that consumer demand isn’t strong. But because a key part of the president’s “climate” plan concerns e-vehicles and subsidized charging stations, there is strong pressure to keep the incentives in the BBB package. If it is enacted, it appears highly likely that the US will face a new complaint by both its USMCA partners, which they would file under the USMCA dispute settlement process.
Trade ministers write Congressional leaders to protest
The Canadian and Mexican trade ministers have already written to the bipartisan leaders of Congress and to the administration expressing concern about the subsidy proposal, claiming it would run counter to the USMCA’s value chain rules for the automotive sector, discriminating in favor of US-made vehicles.
The letter from the Mexican Economy Ministry warned that the proposed subsidy undermines the USMCA and urged the US to reconsider and make sure its policies accord with the regional value rules. Canadian Trade Minister Mary Ng warned in her letter that the US proposal could undermine “the integrity of the North American automotive industry” and “cause severe and irreparable damage to the Canadian automotive industry,” with “a major adverse impact on the future of EV and automotive production in Canada.” “It would undermine decades of US-Canada cooperation to foster an integrated and mutually beneficial vehicle manufacturing and distribution chain… which could be detrimental to US suppliers and their employees.” She also denounced the “protectionist elements” of the proposed subsidies, and pointed out that US plans for electric vehicles depend on Canadian sources of rare earth minerals. Some Canadian provincial leaders spoke even more strongly against the proposed EV subsidies.
The BBB package consist of subsidies that, in essence, pick winners and losers and could in some cases be considered discriminatory and thus challengeable under the WTO or bilateral FTAs.
Concern among European and Asian car manufacturers
Foreign concern with the tax credits/subsidies has been growing for some time, beyond North America. Early this month Toyota, Nissan, Mazda, Subaru, Kia, Hyundai, Mercedes-Benz, Volvo, and Volkswagen sent a joint letter to House Democrats urging them to reject the EV subsidies proposed for the BBB package. It would, the companies charged, “unfairly disadvantage American workers who have chosen not to join a union,” noting that currently the “vast majority” of US-made EVs are not built in unionized factories. Tesla didn’t participate in the letter but has also expressed concern about the proposed subsidies.
From the other side, six House Democrats wrote to House Speaker Pelosi urging that the proposal remain in the package; the United Auto Workers union also came out, unsurprisingly, in support of the measure. According to the Democrats’ letter, “Every foreign-owned automotive manufacturer employs a union workforce in their home country, but those same companies consistently choose to invest in right-to-work states that are hostile to collective bargaining agreements.”
L.C. reports on trade matters for business as well as Founders Broadsheet.
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