US Trade Negotiations: Moving Forward?

One of the central pillars of the Trump administration’s trade policy has been the negotiation of new agreements. That aim prompted the president to request an extension of Trade Promotion Authority (TPA). However, so far, he has not launched negotiations of any new free trade agreement (FTA). Instead, the administration has focused on revisions of existing trade pacts. This post looks at the prospects for U.S. trade negotiations, in particular new movement on negotiations to revise the North American Free Trade Agreement (NAFTA), at least with Mexico, and the launch of talks with the European Union to address a range of tariff and trade issues.

On July 1, TPA was renewed automatically for three years (until July 1, 2021) when two conditions in the TPA legislation were met: The president requested an extension of TPA authority before April 1, and neither house of Congress adopted a resolution of disapproval. (TPA provides for a streamlined review of trade agreements by Congress if the administration complies with certain requirements.)

The potential conclusion of the renegotiations of NAFTA in August could provide the president with his first opportunity to use TPA. The NAFTA talks, which began nearly a year ago, have been stalled since May. However, the U.S. and Mexico are reengaging and have  set a tentative deadline of August 25 to reach an agreement. That would enable the U.S. to provide a 90-day notice of its intention to sign the new agreement, as required by TPA, and for outgoing Mexican President Enrique Peña Nieto to sign it before he leaves office on December 1.

The administration appears to believe that reaching agreement with Mexico would provide the needed impetus to also wrap up negotiations with Canada. If the U.S. were to complete NAFTA negotiations on terms that are fair and reasonable and did not include the “poison pills” that have plagued the NAFTA negotiations, other countries may be more likely to consider negotiating an FTA with the U.S.

At a July 26 hearing of a subcommittee of the Senate Appropriations Committee, the U.S. Trade Representative told the senators that the administration was preparing to start negotiations of FTAs with countries in Southeast Asia and Sub-Saharan Africa, citing the Philippines as a possible candidate. The U.S. has also expressed interest in negotiating FTAs with Japan and the United Kingdom. Japan has shown little interest, preferring that the U.S. rejoin the re-named Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Currently, the only country that appears to be actively seeking an FTA with the U.S. is Britain. On July 18, the UK Department for International Trade announced initiation of public consultations on prospective trade agreements with the U.S. (as well as Australia, New Zealand and the CPTPP). Comments are due by October 26. The British Trade Secretary also expressed the hope that the U.S. would begin the TPA process for an FTA with the UK in December, so that negotiations could begin as soon as it exits the EU at the end of March 2019.

In a surprising but welcomed development, on July 25, President Trump and European Commission President Juncker reached a preliminary agreement to pursue talks on tariff and trade issues in four areas. First, they will work toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods. They will also make efforts to reduce barriers and increase trade in services, chemicals, pharmaceuticals and medical products, as well as soybeans. Second, the U.S. will make it easier for the EU to purchase its liquefied natural gas (LNG) in order to diversify its energy supply.

Third, the presidents agreed to launch “a close dialogue on standards” to promote trade, reduce bureaucratic obstacles and cut costs. Finally, and perhaps most important, the two trading partners will join with “like-minded partners” to reform the WTO and to address unfair trade practices, including intellectual property theft, forced technology transfer, industry subsidies, distortions created by state-owned enterprises and overcapacity.

The U.S. has not agreed to lift the steel and aluminum tariffs on the EU, which it imposed under a national security law. However, the two partners expressed the intention of resolving those tariffs and the tariffs that the EU imposed in retaliation. They also will not impose new tariffs, such as the auto tariffs threatened by the president, as long as the negotiations are ongoing.

As a means of reducing trade tensions and engaging in constructive efforts to tackle trade issues, the talks are promising. But, there are challenges, such as the U.S. claim that the talks will include agriculture; the EU disagrees.

The new talks do not appear to be intended to revive the negotiations of the Transatlantic Trade and Investment (TTIP), which stalled at the end of the Obama administration. If the two sides were to consider formally negotiating a trade agreement, the European Commission would likely need a mandate from its member states and the Trump administration would need to follow the TPA process.

To carry out the agenda, the U.S. and EU will set up an Executive Working Group, co-chaired by USTR Lighthizer and EU Trade Commissioner Malmström. According to Politico’s Morning Trade, chief White House economic adviser Larry Kudlow will play “a major supporting role”.

To date, the only trade agreement that the administration has concluded is a revision of its FTA with Korea. In March, the U.S. and Korea announced an agreement in principle on the revision. The text has not yet been released but there are indications the revised agreement could be finalized in September. The administration did not use TPA for the revision.

Jean Heilman Grier

July 31, 2018

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