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1 The NASCO Weekly Report Vol. 1 No September 2015 Jorge Molina jfmolinal@gmail.com This week Trans Pacific Partnership (TPP) p. 1 Transatlantic Trade & Inv. Partnership (TTIP) p. 4 World Trade Organization (WTO) p. 4 Country of Origin Labeling (COOL) p. 5 Energy p. 6 Mexican Politics p. 6 The Last One p. 6 Trans Pacific Partnership (TPP) 1) All in. On Wednesday 23 September evening, the Atlanta ministerial meeting starting on Wednesday 30 September and ending the next day, which is expected will bring to an end the TPP negotiations, was confirmed. Canadian trade minister Ed Fast said on Canadian TV during an interview on Wednesday evening that he will be in Atlanta next week. The USTR said in a statement that chief negotiators will meet between Saturday 26 and Tuesday 29 September to work on technical issues. The news came after a two day meeting between the US, Canada, Mexico and Japan on auto issues which was critical for finishing the overall negotiations, where enough progress was made in order to identify at least two possible scenarios to solve the deadlock on rules or origin and other trade rules. According to both the White House and the Office of the Mexican President, President Obama called on Wednesday afternoon President Peña Nieto to try to iron out some of the wrinkles, a move that the Canadian media dully noted and questioned why PM Stephen Harper did not receive also a phone call. On Friday 18 September, Japanese Economic Minister Akira Amari who is responsible in his country for the TPP warned that failure to reach a deal in Atlanta could delay an agreement for years. Japan has been pushing to get the next ministerial meeting before the Canadian elections, scheduled for Monday 19 October, in case the Canadian Conservative party does not win. PM Harper has said that it is in Canada s best interest to be a part of the TPP. Reaching an agreement in September allows the US Congress to vote on TPP before the start of the 2016 presidential primaries on Monday 1 February On Tuesday 22 September, New Zealand s trade minister Tim Groser praised the Harper government s willingness to finish the negotiations during an election campaign. Still, Minister Groser said he is not happy with the lack of ambition on liberalizing the trade in dairy products, a sign that bigger players in the TPP talks may have relented in their push for Canada to massively open its markets to foreign milk and cheese. He predicted a TPP accord would not be a gold plated deal as far as he is concerned regarding access to the Japanese and North American dairy markets. In an interview with the New Zealand press, Minister Groser appeared resigned saying what is taking shape may be the best that can be achieved, adding the three largest issues remain automobiles, dairy products and patent extensions for biologic pharmaceuticals. On Tuesday 22 September, USTR Michael Froman said at an event at the Center for Strategic and International Studies in Washington that steady progress was being made and a final deal was close but declined to confirm the ministerial meeting. The USTR is said to be also working on a plan to prevent that a possible government shutdown may interfere with this round. A government shutdown in 2013 forced the USTR to call off a round with the EU. 1

2 2) Auto talks identify landing zones. Conversations on Monday 21 and Tuesday 22 September in San Francisco among Canada, Japan, Mexico and the US allowed to identify two or three scenarios which could lead to a solution on rules of origin (ROO) and other trade rules. These landing zones will be discussed during the Atlanta meeting next week. This week s round, and the previous in Washington, was deemed as critical in order to reach an overall agreement. Auto is Canada s top export. On Wednesday 23 September, a Canadian government official speaking on condition of anonymity said that Talks have been difficult, and there is still much progress to be made. Japan has moved in the right direction, but they re moving inches and we need them to move yards. During the second party leaders debate in Canada on Thursday 17 September, PM Stephen Harper said the auto industry will not necessarily like everything in the TPP. The acknowledgement from the leader of the Conservative party was taken as an omen that the auto parts sector will not be happy with the final TPP outcome. But most importantly, it raised concerns about possible job losses in a sector that employs 80,000 in Canada and the weakening of one of the strongest supply chains in North America. On Friday, 25 people who were protesting against the PM remarks were arrested in Wellington. Trade Minister Ed Fast rejected the assertion made by Unifor president Jerry Dias that Canada could lose as many as 24,000 jobs if foreign automakers are allowed to import vehicles duty free into Canada with substantially smaller ROO than NAFTA s. Unifor estimated that in case that Japan s proposal for a 30% ROO holds, that would lead to a significant portion of the supply chain to move out of the TPP zone, threatening as many as 26,400 Canadian jobs and amounting to lost output of as much as US$6 billion. Municipal councils in Ingersoll, Zorra Township and Essex County, major Canadian auto communities, have passed resolutions urging Ottawa to defend auto jobs in future trade negotiations. Similar motions will be discussed in several more auto communities, including Windsor on Monday 5 October, where Unifor estimates 3,000 auto jobs could be lost. Unifor which represents more than 310,000 workers, including 40,000 in the auto sector is approaching all political parties seeking commitments to maintain the NAFTA ROO in TPP. The American Iron and Steel Institute, the Canadian Steel Producers Association and CANACERO the Mexican National Steel Chamber wrote in a letter sent on Monday 21 September to the trade authorities of North America that they are "very concerned" with reports that TPP auto discussions have included proposals for a ROO with a substantially lower" threshold compared with that of NAFTA. The NAFTA ROO is 62.5% for autos, light trucks and their engines and transmissions, and 60% for other auto parts. The letter notes that motor vehicles make up a significant percentage of steel demand, and that the steel industries in the three countries are "inextricably linked. 3) Japan readies its rice proposal. The Japanese government is preparing its final offer on rice as the auto talks seem to have identified at least two possible scenarios. Japan plans to propose maintaining the current tariff of 341 yen or US$2.82/kilogram on imported rice while allowing 50,000 tons a year of US rice to be brought in duty free when the TPP takes effect. That ceiling would be raised by 2,000 tons each year starting in the agreement's fourth year to a maximum of 70,000 tons. Japan would not have to fully satisfy the import quota. It is uncertain whether the proposal will be enough to break down US resistance. Tokyo hopes to strike a deal with Canberra on an 8,400 ton cap, equivalent to 12% of the proposed US figure. 2

3 4) Pressure remains for better access to dairy products markets. Tom Suber, president of the US Dairy Export Council, said on Wednesday 23 September that Japan, Canada and New Zealand need to open their dairy markets further if the US Congress is going to approve the TPP. It really depends upon those countries. Mr. Suber criticized Japan for not opening its market despite increasing reliance on imported butter and urged New Zealand to take a realistic approach to the negotiations, after the country demanded that other TPP nations drastically open their markets to dairy product imports. Tokyo is offering low tariff imports of dairy products from New Zealand, Australia and the US equivalent to a combined 70,000 tons of raw milk. But New Zealand is standing firm on its demands for greater access. Canada has remained very quiet on any possible deal regarding its supply management system, although PM Harper has repeated that Canada will not walk away from the negotiations. 5) USTR releases detailed summary of TPP objectives. The Office of the USTR released on Tuesday 22 September a more detailed summary of the US TPP negotiating objectives. The report, coupled with a recent update on progress made at the Maui Ministerial meeting in late July, are part of the efforts of the Obama Administration to provide greater transparency to the negotiations for both the general public and the US Congress, according with provisions included in the Trade Promotion Authority bill passed earlier this year. This report is a detailed look at what we are fighting for at the TPP negotiating table to help unlock opportunity for US workers, farmers, and businesses, said USTR Froman. This is another in a series of steps this Administration has taken to share information at every step of the TPP negotiating process, added Tim Reif Chief Transparency Officer of the Office of the USTR. 6) President Xi Jinping s visit brings currency manipulation again to the forefront. The visit of China s President Xi Jinping to Washington this week opened the door for the latest call from Sen. Rob Portman (R OH) to include currency manipulation guidelines in the TPP. Presidents Obama and Xi Jinping are scheduled to meet on Friday 25 September at the White House where they will discuss a vast number of issues from cyber security to climate change, human rights and economic growth. "Just last month, China yet again lowered the value of its currency, another harsh reminder that we cannot afford to sit idly by as China refuses to play by the rules," Portman said in a statement released on Wednesday 23 September. "I urge President Obama to address this issue during President Xi s visit and will continue my push to ensure foreign competitors are playing by the rules." On Tuesday night, President Xi Jinping told 650 business executives in Seattle that China won't deliberately lower the value of its currency to boost exports and grow its slowing economy, according to news reports. On the other hand, on Monday 21 September, Congressional trade leaders Rep. Paul Ryan (R WI), chair of the House Ways & Means Committee, Rep. Sander Levin (D MI), the ranking member of this committee, Sen. Orrin Hatch (R UT), chair of the Senate Finance Committee, and Sen. Ron Wyden (D OR), the ranking member of this committee, wrote in a letter sent to the White House they are increasingly concerned that we have lost forward momentum in the US China trade and economic relationship. They outlined a list of items they want President Obama to address with President Xi Jinping pointing in particular to a need for greater transparency and predictability. The list includes cyber policies, progress on bilateral investment treaty talks, intellectual property protections, currency practices, and barriers against US biotech products, among others. 3

4 Transatlantic Trade & Investment Partnership (TTIP) 1) Malmström and Froman discussed upcoming negotiations. On Tuesday 22 September, EU Trade Commissioner Cecilia Malmström and USTR Michael Froman agreed in Washington on the need to accelerate discussions and achieve progress in all areas under negotiation. Political leaders on both sides have questioned whether there is enough commitment to finish the negotiations. To give an additional boost to the talks, contacts between negotiating teams will be intensified. They also briefly discussed preparations for the upcoming WTO Ministerial Conference in Nairobi in December during a four and a half hour meeting. We need to intensify the pace of our negotiations. That means stepping up efforts on both sides. Today's meeting took place in a constructive spirit, and we have a good momentum going forward to the next negotiating round. In the technical talks preceding the next round, we will instruct our negotiators to exercise creativity and flexibility in order to achieve progress in all areas, said Commissioner Malmström. The next formal round of negotiations will take place starting on Monday 19 October, while a number of technical meetings will continue taking place. Both parties agreed to exchange new offers to eliminate tariffs ahead of the next round. It has been 18 months since the two sides exchanged initial tariff offers, an unusually long time. The EU complained after the first exchange that it had been far more ambitious than the US. Negotiations on services have also not gone as quickly as hoped and talks on investments were put on hold while the EU did an intensive review. Both sides did not include in their statements a mention whether the contentious issue of investor state dispute settlement (ISDS) was raised during the meeting, although the subject was debated this week among EU trade lawmakers in Brussels. Questions about the recent proposal submitted by Commissioner Malmström included how to proceed with the CETA. The question is also relevant as Mexico prepares to update its FTA with the EU. The US Chamber of Commerce fears the new ISDS proposal goes too far to safeguard a government's right to regulate at the expense of protections for businesses against expropriation and discriminatory treatment. During her visit in the US this week, Commissioner Malmström is scheduled to meet with US Secretary of Agriculture Tom Vilsack, Deputy National Security Advisor for International Economic Affairs Caroline Atkinson, and Richard Trumka, AFL CIO President. 2) Malmström said EU leaders must fight for TTIP. On Thursday 17 September, Trade Commissioner Malmström urged EU member states to boost their engagement for the TTIP, acknowledging the power of vocal opposition. The Commission s mandate for TTIP negotiations comes from all 28 EU members. And they want this agreement, so it s their responsibility to explain the value of TTIP to their citizens. The Commissioner spoke a day after she released a revamped proposal for the most delicate issue in the negotiations, the ISDS. Responding to critics from the Green party in the European Parliament who called this initiative a marketing stunt, Malmström said they haven t probably read it fully, but acknowledged that you can t please everybody. This system is not about taking into question states right to regulate, it is designed only for very few cases in the US or EU where business is actually discriminated, the trade commissioner said, adding that it will also set the standards for all upcoming trade deals. World Trade Organization (WTO) 4

5 1) What to expect about Doha. With a standoff between countries seeking a small package of outcomes, like the US and Japan, and those demanding a comprehensive package that includes India, China and Brazil Director General Roberto Azevêdo called last Thursday 17 September for negotiators to start focusing their efforts on the most promising issues for the Nairobi Ministerial Conference in December. DG Azevêdo said a set of deliverables is within reach which has the potential to make the ministerial a success and there is the common view that those deliverables should have development and least developed countries (LDC) issues at their heart. Negotiations will continue in the coming weeks through the formal negotiating groups. Negotiators from both developed and developing countries expressed unease at the proposal to refocus on a narrow package of relatively uncontroversial deliverables. And there is a sense that even the legitimacy of the WTO would be questioned if they fail to make progress on controversial issues, such as farm subsidies and other tariff items. There is widespread consensus that at a minimum the ministerial must contribute to progress on issues of concern to LDCs. Negotiators are now hoping that trade ministers from the G 20 will give further guidance to the talks when they meet in Istanbul on Monday 5 October. The US supported the position of DG Azevêdo and suggested that the US would be willing to agree to domestic agriculture subsidy commitments that do not interfere with its current policies. The US proposed a three part agreement: First, an acknowledgement that some kinds of subsidies are more trade distorting than others. Second, a non binding pledge that members "should seek to avoid using those forms of support." Lastly, major agricultural producers could choose their own binding commitments, though such pledges are expected to limit what can be done in the future without affecting existing agriculture subsidies. WTO members still can't even agree on what kind of deal they're working toward, and that has to change by mid October for there to be a chance at success in Nairobi. The US started a campaign for a small package of outcomes for the Nairobi meeting, which does not include specific demands raised by a majority of countries on agriculture and other areas, and end in December the Doha Round. Developing countries want negotiations to continue until there is resolution to all issues. There are major disagreements regarding full reciprocity in the commitments undertaken. The Trade Facilitation Agreement may not go into force before December, DG Azevêdo also said. Twothirds of the 161 WTO membership, this is 108 nations, have to formally ratify the agreement for it to enter into force. Last week, Liechtenstein became just the 17 th member to implement the pact. DG Azevêdo is scheduled to meet with USTR Froman in Washington on Thursday 24 September. COOL 1) Next steps. After the public hearings on Tuesday 15 and Wednesday 16 September, Canada, Mexico and the US will have to answer in writing questions from the WTO panel studying the dispute. Most questions are expected to come from the methods used by the parties involved to estimate the damages. Canada asked for US$2.4 billion per year in countermeasures, while Mexico requested US$713.4 million. The US argues that that the appropriate level for Canada should be between US$43.22 million and US$ million annually and between US$47.55 million and US$78.95 million per year for Mexico. The final decision is expected by Friday 27 November and there is no appeal. The chief economist for the United States Department of Agriculture has stated that COOL is costing the American industry alone some US$2.6 billion annually, said Canada s Agriculture Minister Gerry Ritz, 5

6 who says the only acceptable solution is the full repeal of COOL to avoid retaliation. Observers say that there is still no agreement between the US Congress and other federal agencies regarding the path to follow. Energy 1) HR 702 moves forward while HR 8 is not. On Thursday 17 September, the House Energy and Commerce Committee approved [31 19] HR 702 To adapt to changing crude oil market conditions which includes provisions to end the 40 year old ban on US crude oil exports. The bill was originally promoted by Rep. Joe Barton (R TX) and the House Majority Leader, Rep. Kevin McCarthy R CA), has signaled HR 702 would be sent to the House floor in the coming weeks. HR 8, the Northern American Energy Security and Infrastructure Act of 2015, a comprehensive energy policy act that addresses energy security, efficiency, and infrastructure, among other issues, which was also on the schedule for markup that day, was pulled as Rep. Fred Upton (R MI), chairman of the Energy and Commerce Committee, said that we do need some more time as discussions continue. The word on the corridors on Capitol Hill is that some committee Republicans want to offer amendments regardless of whether there is Democratic backing, while Rep. Upton promised Rep. Frank Pallone (D NJ), the ranking member of the committee, they would maintain bipartisanship in the committee. Further problems come from Democratic requests to insert provisions discussing climate change while conservative Republicans want to weaken EPA rules. "We re going to pass a bill. It s either with them or without them," Energy and Power Subcommittee Chairman Rep. Ed Whitfield (R KY) said on Tuesday. Mexican Politics 1) Carstens six more years. On Thursday 17 September, the Mexican Senate ratified [84 16] Agustín Carstens for another six year period as head of Banco de México, the Mexican central bank. Twenty eight Senators abstained or were absent, this is, 22% of the total. Dr. Carstens, who started his first term on 28 December 2009, will now finish his second term on Friday 31 December After the vote, Sen. Roberto Gil (PAN), president of the Senate, took the oath from Dr. Carstens. The Last One Can you picture India joining the TPP? The argument comes from the Washingtonbased Peterson Institute for International Economics (IIE). The Last Last One Was it a coincidence that Hillary Clinton finally declared herself against the Keystone pipeline the same day Pope Francis who has made climate change a personal quest arrived in the US? One for the Road In case you miss it, here is the transcript of the Pope speech at Capitol Hill. Any opinions, positions or projections expressed in this report are that of FLG Strategic Market & Government Advice and do not represent those of NASCO. FLG Strategic Market & Government Advice is a Mexico City based consultant firm specialized in political risk analysis, government affairs, public policies, political and economic intelligence, econometric modelling and forecasting. 6

FLG Strategic Market & Government Advice

FLG Strategic Market & Government Advice The NASCO Weekly Report Vol. 1 No. 28 15 July 2015 Jorge Molina jfmolinal@gmail.com twitter @jfmolinal This week Trade Promotion Authority (TPA) p. 1 Trans Pacific Partnership (TPP) p. 1 Transatlantic