Trade correspondent L.C. reports:
The idea of a US-Turkey Free Trade Agreement was raised this week by Sen. Lindsey Graham (R-SC). He spoke about the possibility after meeting with visiting Turkish Foreign Minister Mevlut Cavusoglu, with whom the President asked him to meet. The prospect of an FTA was presumably also the White House’s idea.
Referring to the Russian missile system Ankara is intending to deploy over US opposition and which would scuttle the sale to Turkey of US F-35 fighter jets, Graham said: “My pitch to Turkey was: Let’s stand down on the S-400, let’s start free trade agreement negotiations, which would change the Turkish economy, would help the American economy, will give us a much closer economic relationship.” He tweeted: “We must find a way to avoid the damage to the relationship that comes from Turkey activating the Russian S-400 missile system. When it comes to Turkey, we are looking for a Win-Win, not a Lose-Lose.” And: “It is my hope that we can have a stronger relationship with our allies in Turkey by discussing and negotiating a Free Trade Agreement. This will integrate our economies and be a Win-Win for both nations.”
The huge US trade duties imposed on Turkish steel, a major export, is a major irritant. Their removal would be an important contributor to improved relations. Weakened by recent election reverses and his country’s economic weakness, Turkey’s President Erdogan might welcome the US initiative.
Budget deal improves USMCA outlook
The best thing that happened to the USMCA this week is that Congress reached a budget deal with the White House that frees up legislative space this fall that otherwise would have been spent on averting a government shutdown and debt default. The House and Senate will still have to pass final appropriations bills, but with the budget deal having set spending parameters and eliminated the sequestration threat (automatic spending cuts ordered in the 2011 Budget Control Act), there should be time for votes on other priorities such as the USMCA.
The White House first has to submit an implementing bill. It is not expected to do so until the main Democratic concerns have been met to the satisfaction of House Speaker Nancy Pelosi. Those concerns are still being worked on, and with the House already on August recess and not returning until September 9th, arrangements have been made for congressional staff to work with USTR staff through the recess. It is possible that remaining issues can be worked out so that a bill can be voted on in September or October.
With the Republicans controlling the Senate and having 197 votes in the 435-member House, not that many Democratic votes are needed as long as Pelosi agrees to bring the bill up on the House floor. The White House is likely to submit the implementing bill only when it is almost certain that it has the votes to pass.
During the recess, the private sector is going to go all-out to generate support for the USMCA, continuing its already energetic lobbying. It started on July 23rd when a coalition of over 600 business and farm associations sent all members of Congress a letter urging USMCA approval as soon as possible. The letter laid out the importance of the deal, pointing out, among other things, that “US manufacturers export more made-in-America manufactured goods to [Mexico and Canada] than they do to the next 11 largest export markets combined,” including accounting for “nearly one-third of US agricultural exports.”
Success expected in US-Japan talks
Talks for a US-Japan trade agreement are continuing. They are the only trade talks the Administration is currently involved in that are expected to reach a quick result.
Japanese Economy Minister Toshimitsu Motegi and US Trade Representative (USTR) Robert Lighthizer will meet in August in advance of the G7 Summit later in the month. Prime Minister Abe and President Trump will likely talk at the Summit, but the goal for having an agreement ready for the leaders to endorse is September, when they will meet in New York at the UN General Assembly, which opens September 17th.
The key component of an expected deal will be Japan’s removing barriers to US farm imports in return for the US cutting tariffs on Japanese auto imports.
US calls for WTO reform of “developing country” designation
President Trump wants the World Trade Organization (WTO) to reform developing-country status. On July 26th he issued a memorandum pressing the WTO to change how countries can be designated “developing countries” and thus given “Special & Differential Treatment” under WTO rules. Countries enjoying S&D status may be allowed longer phase-ins for meeting WTO rules and standards or even given exemptions from meeting them. The memo directs the USTR to find a fix and report back in 60 days. If unsuccessful, the US could then unilaterally withdraw S&D treatment from some countries.
The memo is not a general assault on the WTO – in fact, it is written as though the US supports the institution but wants it to reform in specific areas such as developing country self-designation. The self-designation issue has been a sore point at the WTO for some time. It is not just the US that has chafed at allowing countries to self-designate as “developing.” Japan and the EU have also sided with the US.
The new memo is aimed at putting strong pressure on both the WTO and China, which has the world’s second largest economy but still designates itself as “developing.”
China responded quickly. The People’s Daily published an editorial on July 28th declaring that China hasn’t abused its developing-country status and suggested that the US initiative may raise tensions with China on the eve of renewed trade talks. It argued that such status should not be defined by the interests of the US, nor should WTO reform be controlled by a few “hegemony countries.” Moreover, it said, setting a deadline for WTO action shows the “arrogance and impudence” of the US.
China is by far the most significant country that most WTO members think is abusing its designation as “developing.” However, since other poorer countries worry that they too could lose that status, they tend to oppose any change, even if it would mainly pertain to China. This, like many WTO matters that divide the rich countries from the poor, even throws India on the same side as China. So no one expects any quick changes, but there is nonetheless support for the US position.
Huawei
The Chinese electronic company Huawei continues to be the principal obstacle to progress in US-China trade talks. A new revelation of Huawei malfeasance emerged this week. On July 23rd the Washington Post reported that from 2008 to 2016, Huawei surreptitiously worked with China SOE Panda International Information Technology on telecom projects in North Korea, including setting up its 3G network. This appears to be a breach of global sanctions on North Korea. The company said in response that it has “no business presence” in North Korea but didn’t directly deny the report.
The US has previously charged Huawei with breaking sanctions on Iran — for which it indicted its CFO. An accusation of other sanctions violations therefore wouldn’t be surprising. In fact, the Commerce Department reportedly looked into accusations of Huawei re-export of US tech to North Korea in 2016. While the Post story didn’t get much reaction from the President, it was a different situation on Capitol Hill. Sens. Tom Cotton (R-AR) and Chris Van Hollen (R-MD), sponsors of an anti-Huawei bill, released a joint statement saying, “At every turn, we learn more and more about what a malign actor Huawei is.”
The pending bills relevant to Huawei include the Defending America’s 5G Future Act, the Promoting US International Leadership in 5G Act, and the Huawei Prohibition Act submitted by Sen. Mitt Romney (R-UT). The latter bill would prohibit Huawei’s removal from the Entity List unless the Commerce Department certifies that it hasn’t violated any US or UN sanctions, stolen any IP, or posed a threat to US or allied telecom systems for the past five years.
EU and Canada propose Appellate Body fix
Following last week’s Canada-EU summit, the EU and Canada released a joint proposal for an interim solution to the WTO Appellate Body (AB) crisis. Like most of the WTO membership, Ottawa and Brussels are worried that the institution is heading toward the collapse of its dispute settlement function once two of the three remaining AB judges retire on December 10th. It takes three judges to hear an appeal.
So they took the lead in setting out an option should the US continue to block appointment of new judges. It is based on existing WTO rules, specifically Article 25 of the WTO Dispute Settlement Understanding. In essence, Article 25 allows that if both parties to a dispute agree, they may, if the AB is not available, appeal a panel ruling to binding arbitration agreed upon by both parties.
The US is involved in myriad WTO cases, which proliferated after the imposition of Section 232 metals tariffs as well as the Section 301 tariffs on China. It is uncertain that it would accept allowing these cases to be appealed to the arbitration process proposed by Brussels and Ottawa. But other WTO members may be amenable to accepting binding arbitration as suggested in the Canada-EU statement. So the initiative may do what it is intended to do: preserve the WTO dispute settlement function until WTO members agree on a permanent solution.
Leave a Reply