News / Regulatory Updates

Higher Tariffs?           

A widely-cited AXIOS report indicates the President intends to impose 20% tariffs on Steel and possibly other imports, against the advice of his cabinet.  Other products under scrutiny include Aluminum, Solar Cells and Washing Machines. 

More expansive than Antidumping or Countervailing Duty, Section 232 of the Trade Expansion Act of 1962  (Sec 232 – National Security: Steel, Aluminum) and Section 201 of the Trade Act of 1974 (Sec 201 – Global Safeguards: Solar Cells, Washing Machines) permit the imposition  of trade barriers, including increased duties, across all origins and, is not trading-partner specific.

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We may soon learn whether the President has the legal authority to impose tariffs on imports without Congressional approval or whether the administration will bypass WTO rules and impose new barriers to imports.  The first test may come as the result of an April 20th Presidential Memorandum directing Commerce to initiate an investigation under Section 232(b) of Trade Expansion Act of 1962 to determine the impact of steel imports on national security.

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The President was prepared to end the North American Free Trade Agreement deal, which had governed trade relations for the past 23 years, with a dramatic announcement April 29^th at a Pennsylvania political rally marking his 100th day in office.  But after speaking with the leaders from Canada and Mexico, the President announced he will not cancel the North American Free Trade Agreement and will instead work to renegotiate it with Mexico and Canada, reserving the right to cancel if the US does not obtain a favorable deal.

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A TRANS-PACIFIC PARTNERSHIP (TPP) WITHOUT THE U.S.?

The President signed an order on January 23, 2017 withdrawing the United States from the Trans-Pacific Partnership (TPP). Because the original TPP deal required the ratification of TPP members comprising at least 85 percent of the GDP of the entire TPP grouping, without the U.S., a new version of the TPP agreement would be needed for it to take effect. However, a TPP agreement without the U.S. is still relevant and would have significant economic value. The remaining Parties include four of the world’s 20 largest economies — Japan, Canada, Australia, and Mexico — alongside significant emerging economies like Vietnam and Malaysia. With that economic value in mind, the 11 existing TPP members, joined by China and South Korea, met in Chile on March 14-15 to discuss: (a) the possibility of a TPP agreement without the U.S., (b) the Regional Comprehensive Economic Partnership (RCEP) as the TPP alternative and, (c) the Free Trade Area for the Asia-Pacific (FTAAP).

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On March 1, 2017, the Office of the United States Trade Representative (USTR) released The President’s 2017 Trade Policy Agenda.

As detailed in the Agenda, the Administration believes that the United States will be best served by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade agreements when US goals are not being met. The Administration rejects the argument that the United States should, for an purported geopolitical advantage, ignore unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.

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UK Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty on March 29.  This gives the UK and the European Union (EU) two years to agree the terms of the UK’s exit from the EU. EU member states will meet to discuss Brexit on 29 April, a month after the UK triggers Article 50. The purpose of the meeting is to provide the guidelines for the EU’s negotiating team headed by Michel Barnier, the French politician serving as the EU Chief Negotiator for Brexit since December 2016.  The scheduled elections in France, Germany and Italy add a layer of complexity that may make consensus on these guidelines difficult to achieve.

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What Comes After The Trans Pacific Partnership (TPP)?

The President formally withdrew the United States from the TPP on January 23.  Because the United States represents over 60% of the combined GDP of the original 12 countries, without U.S. participation the agreement cannot enter into force.

The TPP was the largest regional trade accord in history and would have set new terms for trade and business investment among the United States and 11 other Pacific Rim nations, representing 40 percent of global GDP and one-third of world trade. Six (6) countries have existing Free Trade Agreements (FTA) with the United States (i.e., Singapore, Chile, Australia, Peru, Mexico, and Canada) and, five (5) have no FTA (i.e., Japan, Brunei, New Zealand, Vietnam, and Malaysia).

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A Tax on Imports?

Yes, this is under serious consideration.  President-Elect Trump has complained repeatedly about the unfair advantage enjoyed by nearly all of America’s trading partners, almost all of whom employ consumption-based value-added taxes (VAT) as a revenue source.  The “unfair” advantage results from zero-rating exports and fully taxing imports.  Because the US derives revenues primarily from income taxes, WTO rules make it difficult to implement a similar “border adjustment”

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