SOTU TRADE BINGO!

Today’s the State of the Union address. How will international trade issues fare? Follow the SOTU speech with our SOTU Trade Bingo cards!

Jorge- TRADE BINGO! Ned- TRADE BINGO! Nicole- TRADE BINGO! Tanya- TRADE BINGO! David- TRADE BINGO!

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2013 has Expired…Will 2014 Be Better for Trade?

As a friend of mine said, “I’m glad 2014 is here, I’ve been waiting for it all year!”  I think I agree, but the trade community may not. While 2013 was a rough year for trade and for Congress, 2014 doesn’t look that much better.

In 2013 we saw the following trade programs expire.

 January 1, 2013

  • Miscellaneous Tariff Bill (duty-free treatment for imported inputs used to make goods in the U.S. or to which there is no domestic opposition and that have a minimum impact on revenue)

 July 31, 2013

  • Generalized System of Preferences (duty-free treatment for least-developed and developing countries on specific non-sensitive products)
  • Andean Trade Preferences Act (duty-free benefits for Ecuador)

Trade policy was no doubt affected by major government crises such as the government shutdown and the brinksmanship on the debt ceiling vote. Overall, Congress managed to pass only 65 bills.  Seven of those bills renamed buildings, bridges, stretches of highway or sections of previously passed laws, while another specified the size of the precious-metal blanks that will be used in the production of the National Baseball Hall of Fame commemorative coins.  Many of the other bills were extensions of provisions expiring in other laws and two were for continuing resolutions.  In comparison, the 112th Congress, heretofore the least productive in terms of bills passed, managed to get 561 bills passed in two years. 

Looking ahead to 2014 causes some consternation as well, with the following programs set to expire.

January 1, 2014

  • Trade Adjustment Assistance (coverage to service providers gone, payments decreased but some coverage under the 2002 measure continues)

January 15, 2014

  • Continuing resolution (the deal reached last year to end the government shutdown ends)

February 7, 2014

  • Debt ceiling (the Fed predicts this is the date we will reach the revised ceiling)

September 31, 2014

  • Ex-Im bank (funding will end)

December 31, 2014

  • Nicaragua tariff preference level (which has increased U.S. exports of fabric)
  • Trade Adjustment Assistance (the 2002 measure will expire, thus ending all funding)

To this list we should add the need for a Trade Promotion Agreement (TPA) bill, which is crucial if there is really going to be a TPP or TTIP finalized and implemented.

For Congress, we can only hope that their New Year’s Resolutions include rolling up their sleeves and getting more productive.  Consumers and businesses in the U.S. hope to see a more robust trade policy agenda from them in 2014.

If you want to place bets, leave us a post with your predictions!

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China’s Black Market for Cell Phone Batteries: An Explosive Issue

If you need replacement batteries for your phone it is better to buy more expensive batteries from trusted sellers than to purchase cheaper batteries from black-market sellers. Since 2011, the Consumer Product Safety Commission (CPSC) has received over 60 reported incidents of phone batteries exploding, catching fire or smoking. Since most phones are either pressed against a user’s ear, inside a user’s pocket or charging near flammable objects, this issue has become a hot topic.

U.S. Senator Charles E. Schumer has called for the CPSC to partner with manufacturers to determine the seriousness of the problem and consider the actions that should be taken against the manufacturers of these aftermarket batteries. Schumer has sparked a debate on how best to handle the “exploding problem.” Some skeptics suggest that 60 incidents is a very small number when considering that there are more cell phones in the U.S. than people. These observers believe that the CPSC would be more effective at spending its time looking into an issue that affects more than 0.000002 percent of the U.S. population. Still, Schumer asserts that most incidents are never reported to the CPSC. Moreover, since every American has a cell phone exploding batteries are a potential problem for all Americans.

Back in 2007, Chinese regulators asserted that mobile phone batteries manufactured by Motorola and Nokia had failed safety tests and were prone to explode under certain conditions. Soon after that report, Motorola fired back that the exploding mobile phone batteries were counterfeit. Nokia responded by stating that it did not manufacture batteries in China. At this time it is not clear how many of these counterfeit batteries have been exported from China.

 The issue of battery regulation has been discussed in the U.S. in the past, both at the federal and state level. Button-cell batteries, for example, have standards that vary from state to state. The issue with these batteries has not typically been whether they will explode when used in a cell phone but rather their environmental impact after that phone is discarded.

 If you are using products with batteries and are worried about all of the compliance requirements, let us know. We have been following current regulation on batteries and can help you out. Contact us at dolave@strtrade.com.

Oh! And have a Merry Christmas and Happy New Year!

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On GSP, CNLs and Waivers

Notwithstanding the expiration of the GSP program in the United States, the Office of the United States Trade Representative (USTR) has requested that parties interested in obtaining competitive need limitation (CNL) waivers do so by December 20. If you don’t know what waivers, CNL and GSP all mean, let me explain.

The GSP, or more properly the Generalized System of Preferences, is a program that started way back in the 1970′s with the aim to promote development around the globe by allowing developing countries to export goods free of duty into the U.S. market. Other major economies such as Canada, Japan and the EU have similar programs in place, although each varies significantly with regard to how it is implemented.

GSP is reviewed every year by USTR. Products may be removed from eligibility after each review based on certain statutory criteria, including when goods are believed to be competitive and no longer in need of GSP benefits. Think about it as when you were big enough to no longer need the training wheels on your bicycle anymore. The mechanism by which the U.S. removes the wheels is called the CNL. When imports of a specific product from a specific country reach a certain value in a given year or are equal to more than 50% of all U.S. imports of that product (as classified at the eight-digit level in the tariff schedule), the good is to be excluded from GSP. The import value level changes every year, but for 2013 is $160 million.

There is a way around the CNL, however. A party wishing to maintain the GSP status of an imported good may file for a waiver of the CNL with USTR. The submission must be presented on or before a specific date and must include substantial information as to why the imported product should continue receiving GSP benefits. Waivers are not always granted, but there are close to 60 waivers in place today.

This brings us back to the initial point. If you want to file for a waiver this year you must do so by December 20. And what products are in danger of losing GSP benefits? The chart below shows the goods that from our perspective fall into this category, including Brazilian wood, Indonesian tin and Turkish olive oil.

GSP Waiver 2013

If you want to know more, or if you need to file a petition, contact David Olave at dolave@strtrade.com.

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The U.S. and Free Trade – What’s It Worth?

President Obama and other leaders hope to conclude negotiations for the Trans-Pacific Partnership (TPP) agreement with 11 other countries by the end of 2013. In addition, the U.S. just finished the second round of negotiations on the Transatlantic Trade and Investment Partnership (TTIP) agreement with the European Union. To put this in perspective, the U.S. currently represents 23 percent of global GDP while its current free-trade partners represent 10 percent of global GDP. The five TPP countries with which the U.S. does not already have an FTA (Japan, Brunei, Malaysia, New Zealand and Vietnam) embody an additional 9 percent of global GDP, while the EU accounts for another 17 percent. Once the TTIP and TPP are concluded, the United States and its free-trade partners will comprise a free-trade bloc worth 65 percent of global GDP. This means that U.S. producers will have duty-free access to more than half of the world’s purchasing power. This signifies an important milestone in international trade that will have significant global consequences.

To understand the consequences of the TPP and TTIP, it may be worth analyzing past free-trade agreements. The U.S. currently has 20 free-trade partners. The graphs below show the percentage of U.S. exports to the selected countries. Although current FTA partners represent only 10 percent of global GDP, they consume nearly half of all U.S. exports. This suggests that free-trade agreements play a crucial role in world trade patterns. If precedence holds and the U.S. does in fact ratify the TPP and TTIP in the next few years, U.S. exports should continue to enter these markets at the expense of the non-FTA countries. While this may only exacerbate the “spaghetti bowl” FTA syndrome, data clearly indicates that the U.S. is better off when signing these FTAs.

Percent of World GDP

Further, according to International Trade Administration data and as seen above, the U.S. has reduced the number of trade deficits it carries with FTA partners by half. The U.S. had a trade deficit with 14 of its 20 FTA partners before their respective agreements came into force, but by 2012 that number had dropped to seven. While the total U.S. trade balance with FTA partners has reached a negative $70 billion, with large trade deficits carried with Mexico ($62 billion) and Canada ($31 billion), the U.S. also has large trade surpluses with Australia ($22 billion) and Singapore ($10 billion).

X and M by region

This data indicates that overall, FTAs have benefited the U.S. with respect to reversing previous trade deficits and increasing overall exports. With the TPP and TTIP on the horizon it is understandable why many in the government are anxious for these deals to be concluded to further expand U.S. exports.

Thanks again to our intern Justin Fisk for the research on this post.

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No Appreciation For Your Depreciation

The government shutdown highlighted how disjointed Congress can be, but there is one thing on which all lawmakers seem to agree: foreign countries devaluing their currencies in order to gain a trade advantage should not be allowed. Over the summer, a total of 230 representatives and 60 senators wrote letters to President Obama, U.S. Trade Representative Michael Froman and Treasury Secretary Jack Lew requesting that currency manipulation be addressed in the Trans-Pacific Partnership agreement.

 Some members of Congress and U.S. trade policy experts have pointed to China’s and Japan’s expansionary monetary policies as proof of currency devaluations that have made it harder to ship U.S. goods overseas. However, neither the U.S. Treasury Department nor the International Monetary Fund have labeled any country a currency manipulator. Economists point out that the U.S. trade deficit with China has continued to increase over the last several years despite the gradual appreciation of China’s currency, contrary to critics’ predictions. Also, recent surveys of U.S. companies doing business in China show that currency manipulation barely registers as a concern.

 Though exchange rates have a significant effect on trade, they have never been addressed in a U.S. trade agreement. This may be due to the fact that estimating a currency’s actual or true value is challenging and complex. In addition, the current international financial architecture may not have the structure in place to effectively deal with currency manipulation. The IMF has strong rules regarding currency manipulation but lacks an effective enforcement mechanism.

 At the same time, many developing countries like Brazil and Russia have accused the U.S. of currency manipulation through its unconventional “quantitative easing” monetary policy. In 2012, Brazil proposed that the World Trade Organization begin discussing its role in addressing exchange rate regulation. In response, the WTO’s Working Group on Trade, Debt and Finance voted to postpone any discussions on this issue until spring 2014. WTO Director-General Roberto Azevedo, who advocated WTO involvement as Brazil’s WTO ambassador, now has stated that the WTO lacks the competence and jurisdiction to tackle currency manipulation.

 At the regional level, the U.S. could add exchange rate regulations to the TPP negotiations and/or include provisions to address currency misalignment in future free trade agreements by making this a trade negotiating priority in eventual trade promotion authority legislation. However, with TPP participants already addressing a substantial number of issues, adding regulations regarding exchange rates may threaten the stated goal of completing the TPP by the end of the year.

 The most likely outcome will be some type of language in a TPA bill regarding the importance of addressing currency manipulation but without a bridge to connect this principle with the practice of enforcement. In the interest of free trade, and given the lack of evidence that currency manipulation can be truly identified and enforced, perhaps this will be one bridge to nowhere that we will in fact appreciate.  

(Thanks to our intern Justin Fisk who provided the background for this post)

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Congress is Having Naan of It

One certainly can’t accuse India of attempting to curry favor with Congress on these days given a succession of trade policy moves that are giving some members heartburn. Bad puns aside, we are seeing an increase in legislation specifically targeting India because of what are seen as protectionist trade practices.

Rep. Lee Terry, R-Neb., chairman of the House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade, recently introduced the “Playing Fair on Trade and Innovation Act.” This bill would prevent the president from granting reduced tariff rates under the Generalized System of Preferences to countries that either fail to protect intellectual property rights or have policies that favor domestic manufacturing. Rep. Terry specifically identified India as a country that engages in unfair and discriminatory treatment, citing a new law that requires domestic production of IT and clean energy equipment.

This is not the first time a member of Congress has spoken against India’s recent trade practices. Over the summer, 170 members sent a letter to the president criticizing India’s IPR policies, . The House Ways & Means Committee also sent a letter to the president denouncing India’s growing protectionism, specifically mentioning the issuance of compulsory licenses and the revocation of patents for eight drugs. The criticism is growing each month as more and more industry associations are speaking out. For instance, 17 U.S. industry associations wrote a letter to President Obama asserting that India’s systematic failure to protect IPR jeopardizes American global competitiveness. In addition, the National Association of Manufacturers and the U.S. Chamber of Commerce’s Global Intellectual Property Center have launched the Alliance for Fair Trade with India to highlight India’s discriminatory trade practices.

Though India is seen by some U.S. lawmakers as increasingly turning toward protectionism, many experts believe such action is only temporary. Recall, for example, that current Indian President Pranab Mukherjee was the primary architect of India’s movement toward the free market during the 1990s. His apparent embrace of protectionism now comes as he works to shore up support for next year’s general election, in which the electoral races appear very tight. Meanwhile, damage is being done in the United States and could result in retaliatory action, such as exclusion or investigative actions under GSP once that program is reauthorized by Congress.

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