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Getting The Deal Through


Gary N Horlick

Law Offices of Gary N Horlick

Wednesday 22 August 2018

The headlines for the last year in trade focused on the newly elected President of the US, Donald Trump. On his first day of work he withdrew the US from the recently signed but not yet ratified Trans-Pacific Partnership (TPP); but a year later at Davos he mentioned in passing that the US might consider joining it, perhaps because someone had explained to him that the TPP was extremely beneficial to the farming and ranching states that had voted for him (although to date the US has done nothing constructive to do so). This reflected the new administration’s position – partially elucidated in a series of speeches, tweets and offhand statements – that US trade policy would henceforth be strictly bilateral and reciprocal in the limited sense of eliminating through trade policy the US trade deficit (or perhaps just the deficit in goods trade, rather than the large surplus in services) which is a product of the gap between US investment and US savings. Meanwhile, a month after the Davos remarks, the other 11 TPP countries met in Santiago, Chile to sign a revised TPP without the US and made clear they would be open to new members, such as the US, Korea and Colombia – or possibly the UK after Brexit.

From this lawyer’s point of view, much of the past year was damage control. ‘Normal’ damage control in the trade law sense is one lawyer or lawyers in a business or government bringing a defined case to the World Trade Organization (WTO) or national authorities such as anti-dumping or countervailing duty (anti-subsidy) cases, or proposing some regulatory or legislative change and other lawyers opposing or supporting for their clients. There was no lack of those. As an example of the ‘normal’, last year I had the honour of requesting a North American Free Trade Agreement (NAFTA) panel on behalf of the UK – a non-NAFTA country – in a countervaiing duty case brought by Boeing against Canada (a large Boeing customer) concerning large commercial aircraft, which the UK did not make. But most of the big fights of the past year were not brought by businesses or their lawyers, or even by trade lawyers in governments.

The decision by President Trump to terminate the TPP was driven by the perception that the TPP was a politically useful symbol of trade taking away US jobs, even though it was carefully negotiated by former US Trade Representative Froman to exclude the likely job losses related to the specific footwear and apparel products still made in the US (the US produces about 1 per cent of its footwear consumption and 2 per cent of its clothing). The main complaints on the business side were from pharmaceutical companies, which received five or eight years of extended protection instead of the 12 years sought, and even they would benefit from the reduction of barriers to exports. The main beneficiaries of the TPP were the farming and ranching states (Japan cut its tariff on US beef from 38.5 per cent to 9 per cent, for example), and they were not complaining.

That was even more the case with NAFTA. The Trump team perceived that their 2016 electoral victory was based on votes from steel and auto workers in five industrial states who say that their jobs are being taken or threatened by ‘imports’. This reflected 30 years of criticism from non-governmental organisations and unions, which ironically may have elected Trump! The numbers do not support the complaint. In 1979, finished steel imports reached 19.9 per cent of the US market, while the big steel mills with blast furnaces had over 70 per cent of the market. In recent years finished steel imports were around 25–27 per cent of the market, while the unionised blast furnace mills had under 35 per cent of the market. Who took away the 35 per cent of the market? Imports accounted for 7–8 per cent, while almost 30 per cent of the US market was taken away from those unionised steel workers by newer, subsidised, non-union ‘minimills’, especially in the American South. The same was true for autos, where non-union subsidised plants sprung up throughout the South. It is much easier to blame foreigners, though.

Facts were not going to interfere with the administration’s use of section 232 of the Trade Expansion Act of 1962, allowing action to protect national security, and to impose stiff tariffs on worldwide imports of steel and aluminium, notwithstanding a statement by the Department of Defense that only 3 per cent of US production would suffice for that purpose. Subsequent administration pronouncements clarified that the purposes of the tariffs were to pressure the EU to lower its tariffs on US cars, to pressure Korea to revise the US–Korea Free Trade Agreement, to impose quotas reducing imports from Korea, Brazil and others, or to impose quotas to increase imports 35 per cent from Argentina. As of this writing, Japan, Canada, Mexico, India, Turkey, Thailand and the EU were preparing to join China in imposing retaliatory tariffs, challenging the US tariffs in the WTO, and possibly imposing safeguards (likely to be challenged in the WTO) on steel imports to prevent diversion from the US market. One challenge to the tariffs is under way in US courts and more seem likely.

All of this illustrated the ability of these new trade initiatives to generate lots of work for trade lawyers in government, companies and the private bar. And other countries have done their part to help out.

The new Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) suspended some provisions of the original TPP (mostly IP provisions sought by the US, to provide a reason for the US to rejoin once its exporters have lost enough sales and jobs). The CPTPP faces ratification procedures and then implementation processes in 11 member countries, and consequent commercial rearrangements by companies in those and competing countries. The new CPTPP may spur progress in the Regional Comprehensive Economic Partnership, the trade negotiations including China, India, Japan, Australia, New Zealand and the Association of Southeast Asian Nations countries, although India seems wary of tariff reductions if they are available to China. The Pacific Alliance (Chile, Colombia, Mexico, Peru) seems intent on extending its zero-tariff deals with other TPP countries and beyond. Perhaps most significantly, the EU is moving ahead to implement its recent deals with Canada, Vietnam and Japan, and a revised agreement with Mexico, and to start deals with Australia and New Zealand – in effect replacing the US for a lot of TPP trade.

Enough countries backed WTO Director-General Azevedo in the Ministerial Conference in Buenos Aires in December 2017 to permit the WTO to move forward with talks on fisheries subsidies, digital trade and (with luck) the fraught topic of agriculture. Important dispute settlement decisions were issued on trade remedies (especially as to allegedly ‘non-market’ economies) and sanitary and phytosanitary measures and are pending on the Tobacco Regulation cases. Important new cases have been filed against the protectionist 2015 amendments to US trade remedy law, and involving article XXI on national security in cases between Ukraine and Russia, Qatar and Saudi Arabia and the United Arab Emirates, and the US and a lot of steel exporting countries. Some of this was overshadowed by the Trump administration’s war on the Appellate Body for not ruling in favour of the US in all cases. The resolution of that issue and the maintenance of a neutral and effective dispute settlement system (and the WTO itself) remains to be seen.

Brexit remains the Rubik’s Cube of trade law, with each question raising a host of other questions (eg, the Northern Irish border). The agreement on a transition period from 29 March 2018 to 31 December 2020 provides the necessary time for a massive legal effort to draft agreements, draft and pass domestic legislation, and redraft an enormous number of private legal documents which mention EU law in the UK (purchase orders, financings and arbitration agreements). While some of that can be done less rapidly, it will require a massive legal effort akin to Y2K in the buildup to 2000 to make sure that all the necessary changes are made and double checked for consistency and digital interoperability (eg, for goods clearing at least two customs authorities, with help from a logistical train of shippers, brokers, freight forwarders, letters of credit and so on). Still to come, once the political decisions have been made, is dealing with the EU’s agreements with third countries (not just trade, but exchange of air passenger data, wine standards, easy transit of racehorses, and many more – estimates range from more than 500 to perhaps 12,000).

One should not expect the next year to be calmer!

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