FLG Strategic Market & Government Advice

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1 The NASCO Weekly Report Vol. 1 No July 2015 Jorge Molina jfmolinal@gmail.com This week Trade Promotion Authority (TPA) p. 1 Trans Pacific Partnership (TPP) p. 2 Transatlantic Trade & Investment Partnership (TTIP) p. 4 Country of Origin Labeling (COOL) p. 5 Pacific Alliance p. 6 Energy p. 6 The Last One p. 6 Trade Promotion Authority (TPA) 1) President Obama signed TPA: On Monday 29 June, President Obama signed in the White House the Trade Promotion Authority (TPA) saying the legislation will help the US rewrite trade rules, raise labor and environmental standards around the world and lead in the global arena. President Obama also signed the Trade Adjustment Assistance Program (TAA) and the African Growth and Opportunity Act (AGOA) that provides trade preferences for African countries and which was extended to Haiti. The AGOA bill also reauthorizes the Generalized System of Preferences, which has been expired for two years and applies to more than 120 countries and territories. The customs and enforcement law is the only bill still pending from the trade package considered by the US Congress. The bill has been approved by both chambers with some differences that need to be iron out in a conference, which is expected to take place in July. Such differences include a provision to remove the fast track to agreements involving countries identified by the Department of State in their human trafficking list. On Friday 26 June the Senate conferees were announced: Senate Finance Committee Chairman Orrin Hatch (R UT), the ranking member of the committee Sen. Ron Wyden (D OR), Senate Majority Whip John Cornyn (R TX), and Sens. John Thune (R SD), Johnny Isakson (R GA), Chuck Schumer (D NY) and Debbie Stabenow (D MI), ranking member of the Senate Agriculture Committee. President Obama wanted to sign the TPA bill (HR 2146 or PL ) before Saturday 4 July and help the TPP negotiations (see below) to restart as soon as possible to get the agreement approved this year. The legislation states that once the negotiations are finished the final text must be available for public consultation for 60 days and that Congress must spend at least 30 days working on it. The US Congress will adjourn for the summer recess on Thursday 30 July and will come back on Tuesday 8 September, while the fall session is scheduled to finish on Friday 18 December. Because of the Independence Day recess, only Sen. Chris Coons (D DL), Reps. John Delaney (D MI), Ron Kind (D WI), Gerald Connolly (D VA), Don Beyer (D VA), Pat Tiberi (R OH) chair of the Trade Subcommittee of the Ways & Means Committee and Dave Reichert (R WA) attended the ceremony. The President thanked by name House Speaker John Boehner (R OH), Senate Majority Leader Mitch McConnell (R KY), Sens. Hatch, Wyden, Patty Murray (D WA), Rep. Paul Ryan (R WI), chairman of the House Ways & Means Committee, and Reps. Tiberi and Kind. USTR Michael Froman, Treasury Secretary Jack Lew and Commerce Secretary Penny Pritzker were also in attendance. 2) House approved TAA: On Thursday 25 June, the House voted [ ] to renew the 50 year old worker entitlement program with overwhelming support from Democrats, who reversed themselves on the legislation after losing the fast track battle with the White House and Republicans. TAA (HR 1295) was packaged with the AGOA and two other programs to help Haiti and more than 120 developing 1

2 countries sell their goods to the US. Democrats have traditionally provided the bulk of support for TAA but they opposed it in droves in an initial vote three weeks ago when it was packaged with the fast track bill that most in the party oppose. Minority Leader Nancy Pelosi (D CA) said she would vote for the worker retraining program earlier Thursday, adding that it was time to move on to the debate on the TPP. On Wednesday 1 July, USTR Froman praised Rep. Pelosi for setting up in depth meetings with the Democratic caucus and trade officials to discuss several issues during the TPA approval process. 3) What comes next: TPA allows the US to engage in the most ambitious campaign which will redefine the international trade regime. In the 18 months remaining in the Obama administration the list of major trade projects is long: TPP that accounts for 40% of the world s gross domestic product (GDP), TTIP which would create the most important trade block in the world, the WTO s Information Technology Agreement (ITA), which covers about 97% of the world IT trade, the Environmental Goods Agreement (EGA), accounting for 86% of international commerce in green goods, the 24 party Trade in International Services Agreement (TISA), which involves 75% of the US GDP and 67% of the world s services and a bilateral investment agreement with China. Trans Pacific Partnership (TPP) 1) It is possible to have TPP in 2015: USTR Michael Froman said Wednesday 1 July he is confident Congress will approve the TPP possibly by year s end because it will be a strong agreement reflecting the enormous input by Congress. To prevent the approval of the TPP takes place next year, when the US presidential election will take center stage, it is considered necessary to finish the negotiations no later than Saturday 15 August. A meeting of the trade ministers is expected to take place beginning on Thursday 23 July, probably in Hawaii. Froman said negotiations are in the final stages down to a reasonable number of outstanding issues but by definition those issues tend to be the most difficult. The outstanding issues are centered on opening markets in Japan and Canada as well as working through concerns over intellectual property protections and state owned enterprises. A meeting of the chief negotiators is considered necessary prior to the ministerial meeting. Patience with Ottawa is running out. On Thursday 25 June, USTR Froman made clear that Washington wanted to see movement. "We have work to do with Canada on issues like dairy and poultry, where we are certainly waiting for them to come to the table with a meaningful offer." On Japan, USTR Froman said on Thursday 25 June the next bilateral meeting for the parallel talks on agriculture and autos had not yet been scheduled, though the two sides are talking. The largest pending bilateral issue is the increased volume of imports of US grown rice, but it now appears highly likely that both sides will reach a compromise on a figure near the upper limit of 50,000 tons annually that Japan had been calling for, according to the Japanese media. Japan is also likely to secure a satisfactory result regarding the removal of the US 2.5% tariff on most auto parts made in Japan. Australia and Vietnam have also demanded tariffs be lifted from the rice they export to Japan. Japan had floated the idea of setting up a TPP special import framework for these two nations and the US. I want Japan and the United States to show leadership and do everything possible to quickly wrap up the agreement, PM Shinzo Abe said Thursday 25 June before the Japanese Congress. Japanese Economy Minister Akira Amari said he hopes the TPP can be wrapped up by the end of July, and New Zealand 2

3 Trade Minister Tim Groser said he sees August as a deadline. "If we have not actually got most of it by then, it gets very difficult," Minister Groser said. "It's going to be fast and furious in the next six weeks." New Zealand, which makes competitive dairy products, declared that unless the markets in each TPP nation are opened to some extent for its own products, it will refuse to offer concessions on rules for intellectual property. I'm not comfortable with the deal that's on the table for dairying and that will be our overriding priority. If we don't get a better deal, we won't be signing what's on the table at the moment," Minister Groser said earlier this week. USTR Froman said next steps include phone calls, video conferences and visits among TPP members to set the groundwork for a ministerial meeting. Froman met last week in Washington with Magali Silva, the Peruvian Trade Minister. Peru will hold presidential elections next year for the period. The first round is scheduled for Sunday 10 April. So far, 11 of the 29 chapters, including customs procedures and immigration clearance procedures for businesspeople, are considered finished and several others are considered near completion, according to government sources. 2) It seems Canada will remain at the table: On Thursday 25 June, PM Stephen Harper said in Quebec that Canada will defend its supply management system for dairy and poultry while continue to negotiate the TPP. "These negotiations are going to establish what will become the basis of the international trading network in the Asia Pacific. It is essential in my view that Canada be part of that. "At the same time, we are working to protect our system of supply management and our farmers in other sectors." The government is facing fierce lobbying from dairy and poultry farmers, who want Ottawa to resist making any concessions in the talks. Canada is facing increased pressure from Australia, New Zealand and the US to open up its supply managed sectors, which are angling for more access to Canada s dairy and poultry markets beyond those limits negotiated with the EU. PM Harper has given no indication of what concessions Canada might make at the talks. On Monday 29 June, Tom Mulcair, leader of the New Democratic Party (NDP) urged in a letter to PM Harper to defend supply management in its entirety during the TPP negotiations. Mr. Mulcair is accusing the Conservatives of creating a climate of uncertainty around the future of the country s dairy, eggs and poultry sectors. General elections are scheduled for Monday 19 October, where NDP is expected to benefit from the announcement of PM Harper to continue negotiations. The Liberal Party agreed that Canada must be part of the TPP but said the federal government should still preserve supply management. Agriculture Minister Gerry Ritz has repeatedly said Canada will not be bullied into making agricultural concessions at the negotiating table, often pointing in past interviews to the US former inability to secure fast track authority and its own heavily subsidized cotton, rice and sugar industries. 3) Australian Parliament attacks TPP s excessive secrecy: A new report from the Foreign Affairs, Defense and Trade Committee of the Australian Parliament distributed on Thursday 25 June attacks the TPP for being too secretive and lacking adequate "oversight and scrutiny." The report says that suspicions have been confirmed that "not is all right with the current" trade agreement process, because parliamentarians and other stakeholders are "kept in the dark during the negotiations when Australia's trading partners, including their industry stakeholders, have access under long established and sensible arrangements." 3

4 The report echoes several arguments raised in the US Congress saying that because lawmakers are only allowed to officially review trade laws once they have officially passed, "Parliament is faced with an allor nothing choice" on whether to approve the accord. "Parliament should play a constructive role during negotiations and not merely rubber stamp agreements that have been negotiated behind closed doors." 4) The Wikileaks weekly TPP leak: On Monday 30 June, Wikileaks published that the head of the EU Trade Section Hiddo Houben told the French Economics Minister Counselor Jean Francois Boittin that the TPP seemed designed to provoke a confrontation with China. Mr. Houben pointed out that the US was negotiating with every nation that borders China, asking for commitments that exceed those countries' administrative capacities, so as to confront Beijing. Mr. Houben expressed skepticism if the TPP agreement takes ten years to negotiate, the world and China will have changed so much that that country likely will have become disinterested in the process, making the entire initiative a wasted effort. Should the TPP initiative fail, the US will have no alternative, but to return to the WTO the document adds. Transatlantic Trade & Investment Partnership (TTIP) 1) 10 th round starts Monday 13 July: On Friday 26 June, the office of the European Commission (EC) announced that Monday 13 July will start the 10 th round of talks in Brussels. This round will end on Friday 17 July and on Wednesday 15 July the EC will hold an event for interest groups where presentations will be welcome on regulatory coherence, technical barriers to trade, energy, market access, regulatory issues related to agriculture, geographical indications, services, investment, public procurement, rules on state owned enterprises and intellectual property rights. After the presentations, both chief negotiators will brief interest groups. USTR Michael Froman said on Wednesday 1 July he hopes to complete the negotiations before President Obama leaves office in January 2017, echoing a statement made by EU Trade Commissioner Cecilia Malmström two weeks ago. 2) INTA sends Lange Report back to the EP: In their meeting on Monday 29 June, the International Trade Committee (INTA) of the European Parliament approved to send back to the floor 113 of the 116 amendments tabled before the plenary in early June. The committee took the decision in two separate votes, one to retable the plenary amendments and the other to retable requests for split or separate votes. The EP Conference of Presidents, the group of the EP President and the leaders of the EP political groups which sets the EP plenary agenda, decided to have the debate and the vote on Wednesday 8 July in Strasburg. It was necessary that at least five of the 41 INTA members voted in favor of each amendments which was considered to be referred back. It is still necessary to develop a strong agreement between the two major political parties, the European People s Party (EPP) and the Social Democrats (S&D) particularly regarding the investor state dispute settlement mechanism (ISDS) to guarantee approval of the document. Martin Schulz (S&D), the EP president, has told lawmakers that setting up a new European court to settle trade disputes could overcome public resistance to the accord, with publicly appointed, independent professional judges would mediate disputes in public hearings. The proposal echoes a Franco German proposal for a permanent European ISDS court. The European Commission, which is in charge of the negotiations, has suggested a multilateral court, but lawmakers say that may take too long to set up. 4

5 Far left, far right and Green lawmakers are determined to block any pact containing investment arbitration, which the US says must be in any final deal. 3) German SMEs fear the TTIP: While the German government is the major EU supporter of the TTIP, German small and medium enterprises (SMEs) remain most skeptical of the agreement thinking the agreement will create benefits mostly to large corporations causing a major headache for the government of Chancellor Merkel. German SMEs, known as Mittelstand that account for 89% of Germany's exporters and form the backbone of the economy. A Commerzbank study last year found only 15% of Mittelstand companies believe TTIP would be a good thing for their business. A separate survey by the BVMW Mittelstand association showed more than 80% of its members believe the government is not doing enough to represent their interests in the negotiations. Last month, Economy Minister Sigmar Gabriel declared that the talks might fail. Minister Gabriel belongs to the Social Democrats (S&D) which is against the agreement. Mittelstand companies are not against free trade and many welcome TTIP's aim to eliminate tariffs and create common technical standards, which would lower the cost of entering the US market. In particular, suppliers to Germany's big car companies BMW, Daimler and Volkswagen, stand to benefit from harmonized regulatory standards. But Mittelstand companies also realize this will help US companies who want to sell to Europe. The so called cultural industries have also become a source of concern. The German government provides support and protection to bookstores, orchestras, theatres and other cultural outlets. To many in Europe, the potential for powerful business interests to overwhelm the Continent s robust and highly subsidized cultural sector under TTIP is very real, and strikes at a key tenet of European identity. Europeans do not consider the subsidies to their cultural life as trade barriers. All German bookstores sell books at prices set by the publisher, which would not allow Amazon and similar companies to offer discounts. Country of Origin Labeling (COOL) 1) No consensus in the Senate: Although most witnesses during the Thursday 25 June hearing sponsored by the Senate Agriculture Committee spoke in favor of repealing the COOL legislation, there is no consensus in the Senate on how to proceed. Sen. Pat Roberts (R KS), chairman of the Senate Agriculture Committee, said on Tuesday 30 June there are not enough votes to approve in the Senate a similar bill, but added the repeal of the COOL law is the surest way to protect the US economy. Sen. Debbie Stabenow (D MI), the ranking member of the committee, introduced a bill to make COOL voluntary for beef and pork and would put in place a Product of the US label. Sen. Stabenow said on Tuesday 30 June that "inaction from the Senate is not an option, not when the threat of retaliation is hanging over the head of American agriculture." The Canadian and Mexican governments sent letters saying that the only possible solution is the full repeal of the COOL law. We understand that alternative labeling regimes may be under consideration, Ildefonso Guajardo Villarreal, Mexico s Secretary of the Economy, said in one of the letters introduced as evidence at the hearing. To be clear, repeal of the COOL measure for meat products is the only option that will resolve this dispute. Sen. Roberts said he hopes to hold a markup on a bill in July in order to try to approve the bill before the August recess. House Agriculture Committee Chairman Michael Conaway (R TX) who considers that a voluntary program could only be implemented after the full repeal of the current law has continued to 5

6 call for repeal and the COOL Reform Coalition, which includes manufacturers who fear trade retaliation as well as the meat industry, still favors repeal because that will assure no discrimination and no retaliation. Sen. Roberts noted that Canada has threatened retaliation on products including beef, pork, cherries, ethanol, wine, orange juice, jewelry, mattresses and furniture. Mexico has not disclosed a similar list. Mexico filed for authorization for over US$713 million in retaliatory tariffs in a the Monday 29 June Dispute Settlement Body meeting of the WTO. Pacific Alliance 1) 10 th Summit to take place in Peru: Presidents Michelle Bachelet of Chile, Juan Manuel Santos of Colombia, Enrique Peña Nieto of Mexico and Ollanta Humala from Peru will meet in Paracas, Peru, for the 10 th Summit of the Pacific Alliance (PA), which promotes the free flow of goods, services, people and money. The summit starts on Wednesday 1 July with a meeting of the High Level Group a group made by the undersecretaries of trade and foreign affairs that is responsible for coordinating the work of the technical groups. The trade and foreign affairs secretaries meet the next day and the presidents will formally meet on Friday 3 July. This is a particularly important meeting for the PA. The PA caught the eye of countries around the world when it showed that it was capable of reaching agreements between 2011 and 2013 while the TPP was not making much progress. But now that TPP negotiations are about to finish, the PA needs to start delivering, especially when Chile, Mexico and Peru are TPP members, and show that the group has a clear vision of where it wants to go. Canada, the US and 30 other countries from the five continents participate as observers. Costa Rica and Panama are waiting to become members. Energy 1) Senate Democrats against easing crude export ban: On Friday 26 June, 13 Senate Democrats wrote a letter to President Obama against ending the four decade old crude export ban, warning that allowing overseas sales of US oil would put refinery expansions at risk and drive gasoline prices higher. US crude is a major interest of the EU in the TTIP and some other countries in the TPP. Current legislation allows the US to make sales with several restrictions only to countries with FTAs Republicans remain split on this issue as well as the timing and scope of such legislation. Signing on to the letter were longtime export critics Sens. Ed Markey (D Mass.), Robert Menendez (D NJ), Barbara Boxer (D CA), Sheldon Whitehouse (D RI), Patty Murray (D WA), Jeff Merkley (D OR), Elizabeth Warren (D Mass.), Bob Casey (D PA), Tammy Baldwin (D WI), Jack Reed (D RI), Mazie Hirono (D HI), Ron Wyden (D OR), and Al Franken (D MN). The Last One Canadian exports to the US: 75.8%, Mexican exports to the US: 78.8%, US exports to Canada: 19%, US exports to Mexico: 14.3%, US exports to China 7.7%, US exports to Japan 4.1% (2013). 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. 22 3 June 2015 Jorge Molina jfmolinal@gmail.com Twitter @jfmolinal This week Trade Promotion Authority (TPA) p.1 Trans Pacific Partnership (TPP) p.2 Transatlantic Trade