Trade correspondent L.C. (supplemented by a late-breaking addition): As we went to press, Bloomberg issued the following report on the just-concluded US-Canada agreement to continue NAFTA:
“Globalists Will Love Trump’s New Nafta Deal. Despite the fanfare, the agreement doesn’t change much.
“For the group of people meant to be enemies of President Donald Trump’s trade agenda, the revised North American trade deal reached shortly before the stroke of midnight Sunday looks pretty good.
“Despite the new name (the U.S.-Mexico-Canada Agreement, or USMCA) dropping any references to trade, let alone freedom, the tariff rates on imports from Canada and Mexico are still a mass of zeroes. The main new element – the abolition of a variety of milk Canada introduced last year to support its domestic dairy industry – is ultimately an anti-protectionist move. The main old element is some fiddling around Nafta’s rules on automotive trade which, as we’ve argued previously, aren’t likely to change much.
“That suggests an emerging playbook for the Trump administration’s trade agreements. As with the revised U.S.-South Korea deal announced last week, the achievement is declared to be historic while the changes made are cosmetic. That dynamic bodes rather well for the U.S.-Japan bilateral talks announced last week, not to mention the simmering trade war with China. For the globalists so often bashed in Trump-era rhetoric…that’s good news.
“Consider the agreement on dairy. The milk variety that Canada has agreed to discontinue – known as Class 7 milk – has been in existence for barely 18 months, and its opponents include not just U.S. trade negotiators but also Saputo Inc., one of Canada’s largest processors.
“More to the point, milk products comprise an almost infinitesimal share of the trade relationship between the two countries, accounting for about $364 million, or 0.06 percent, of each-way flows.”
Trilateral initiative on WTO reform issues joint statement
The trilateral (US-EU-Japan) trade negotiators just issued a joint statement on recommended WTO reforms to curb Chinese abuses. (Photo shows an earlier meeting of the three in March 2018)
Developments pertaining to the World Trade Organization (WTO) this week included a fruitful meeting of the US-Japan-EU trilateral initiative on WTO reform and on curtailing market-distorting practices in third countries. The meeting, which took place in New York, was the third at the ministerial level, involving Lighthizer, Trade Minister Hiroshige Seko, and EU Trade Commissioner Cecilia Malmstrom.
They released a rather long “Joint Statement on Concerns with Non-Market-Oriented Policies and Practices of Third Countries,” which noted that the ministers also discussed WTO reform. Most of what was covered are priority issues for the US, and the practices targeted are largely Chinese abuses. The joint statement is detailed, indicating agreement on how the three intend to proceed. It addresses non market-oriented policies and practices of third countries that lead to
- Severe overcapacity,
- Unfair competitive conditions,
- Forced technology transfer, and
- Prolongation by large emerging economies of their status as development countries.
Bogus charge of sovereignty infringement
President Trump has frequently but inaccurately denounced the WTO for infringing on the sovereignty of the US. But the WTO is simply its membership. It’s not a supranational executive like the European Commission. The WTO’s secretariat does research and administration but has no authority; it does not dictate anything to anyone. Its rulings on disputes — which are initiated by a member, not by the WTO –are “recommendations.” Countries can and do ignore them. The US and EU in particular very often ignore or dispute panel recommendations. When a country does ignore a recommendation, all that happens is that other countries are given public authorization to take action behind their own borders – that is, to restrict imports from the offending country. More precisely, only the country that brought the complaint resulting in the recommendation is given authorization to punish the offender. In other words, countries are given public permission to do something that, in the absence of the WTO, they were able to do before anyway. Winners of WTO disputes can’t invade, embargo, or arrest legislators from the countries that lost the dispute or force them to change the law. Losing countries can reject the recommendations and absorb the countermeasures. The WTO, in short, is a body to encourage good trade behavior through international publicity and discussion. There is no coercion or violation of any country’s national sovereignty.
US-South Korea Free Trade Agreement finalized, hyped by President Trump
Six months after the US and South Korea reached an agreement in principle for revising the US-South Korea FTA, the leaders of the two countries finalized the deal during a September 24th meeting in New York where both Presidents Donald Trump and Moon Jae-in were attending the UN General Assembly
The changes made to the agreement were so meager that they won’t require a congressional vote. In Seoul, however, the Korean National Assembly will have to vote on the revised KORUS, and there may be some resistance there because Korea didn’t win a commitment not to be hit with Section 232 auto tariffs.
Most of the changes render the agreement more protectionist, due to provisions insisted on by Washington. These include Seoul’s agreement to extend for 20 years – from 2021 to 2041 – the deadline for eliminating the US 25% tariff on light pickup trucks and SUVs, South Korea also agreed to impose “voluntary” export quotas on the export of steel products to the US in return for the US dropping its Section 232 25% tariff on steel exports. The 10% tariff on South Korean aluminum exports still remains.
One trade liberalizing provision is a change to Seoul’s drug pricing regime that was sought by the US pharmaceutical industry. Korea also committed to change customs procedures to make them less burdensome, including for agricultural products.
The finalized agreement was welcomed by the US private sector, agriculture in particular, not because new markets were opened — the Bush and Obama administrations arranged that — but rather because until the revision process was closed, there was a danger that the President would withdraw from the existing agreement. Agriculture associations welcomed the announcement because it will allow them to continue accessing the South Korean market under the terms of the old KORUS, which cut or eliminated most farm tariffs and allowed increased access for important products like beef.
Trump claimed that “this is a brand new agreement… not an old one re-written”), that he was the first to revise KORUS (Obama did a more extensive revision before sending it to Congress for approval), that US car makers will be selling more cars to Korea (the cap on cars not meeting Korean safety standards was raised but no US company even met half the previous cap), and that “we are now going to start sending products to South Korea.” Start? We’ve long been spending many products to Korea.
But the worst Trump hype concerned agriculture. “I think our farmers are going to be extremely happy. It was very limited as to what they could do and what they could send. And now it’s a open market, and they’re going to be sending a lot more farm products.” The Bush Administration won significant farm access, getting rid of most tariffs and lowering them on some products (e.g., beef). The issue wasn’t one the US even made any significant demands on in the renegotiation. On the other hand, if Korean farmers, who staged multiple violent protests against Korea’s former ag liberalizations, think the government made any new concessions, Pres. Moon will be in trouble.
US and Japan will negotiate bilateral trade agreement
Following a September 26th summit between the two countries’ leaders, the US and Japan announced that they will enter into negotiations for a bilateral trade agreement. The announcement was unexpected and represents an apparent acquiescence by Tokyo to Washington’s demand for bilateral talks. Tokyo won a reprieve from the threat of new auto sector tariffs and US agreement not to push for farm market access beyond what Japan has already offered in other trade agreements. But Abe did not win any commitment to the early removal of the Section 232 steel and aluminum tariffs.
For the President, the timing is crucial from his domestic political standpoint. He needs a “win” on trade going into the November 6th midterm elections, something beyond the KORUS and NAFTA revisions. Those are important to assure the US agricultural sector that it won’t lose foreign markets beyond those already lost from retaliatory tariffs. Japan has been a big worry for US farm exporters, ranchers in particular, since they see their market there dwindling as Japan’s other free trade agreements (the Tran-Pacific Partnership, Japan-EU FTA, and Japan-Australia FTA) cut tariffs for suppliers who compete with the US, enabling them to undercut US farm and ranch exports.
The most encouraging development would be for the US, before the midterm elections, to resolve its outstanding trade issues with allies and turn its attention to the US-EU-Japan negotiations for WTO reform.
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