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1 The NASCO Weekly Report Vol. 1 No June 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.3 World Trade Organization (WTO) p.4 Group of 7 (G 7) p.4 Country of Origin Labeling (COOL) p.5 Regional Politics p.5 The Last One p.6 Trade Promotion Authority (TPA) 1) TPA in June?: House Majority Leader Rep. Kevin McCarthy (R CA) said on Friday 29 May he is looking to have a floor vote on the TPA on the second or third weeks of June, but did not provide a specific date, nor how the other three trade bills approved by the Senate last month will be handled. The House has a three week window until Friday 26 June, when they will adjourn for the Independence Day recess. The House will come back on Tuesday 7 July for a four week period, until Thursday 30 July. Republicans plan to have the vote as soon as possible to prevent further issues to affect the position of those in favor of the bill approved by the Senate last month. The TPA needs to be approved by simple majority, this is, 217 votes, 30 of those expected to come from Democrats. While House Ways & Means Committee chair Rep. Paul Ryan (R Wis.) has said they have enough votes, considering other bills this week ahead of the TPA indicate this may not be true. President Obama has begun calling House Democrats targeting the New Democrats and the Congressional Black Caucus. USTR Michael Froman, Labor Secretary Tom Perez, Commerce Secretary Penny Pritzker and Treasury Secretary Jack Lew have been meeting with members of the Democratic caucus to explain several issues, as it estimated there are no more than 18 Democrats in favor of the TPA at this time. House Minority Leader Rep. Nancy Pelosi (D CA) has been particularly helpful organizing these meetings and is expected to become central in gathering the necessary votes. Speaker Rep. John Boehner (R OH), Rep. McCarthy, House Majority Whip Rep. Steve Scalise (R LA) and Chief Deputy Whip Rep. Patrick McHenry (R NC) were scheduled to meet this week with undecided Republicans. A significant pool of GOP lawmakers are holding out and will commit to no one other than Boehner and McCarthy. They want to convey to the top two leaders how tough of a vote this is. 2) Ex Im Bank central to trade legislation: The authorization of the Export Import Bank has become linked to several pieces of trade legislation. Senate Majority Leader Mitch McConnell (R KY) was able to get the necessary votes to stop the debate on the TPA bill when he struck a deal with Sens. Patty Murray (D WA), Maria Cantwell (D WA) and Lindsey Graham (R SC), by assuring a separate vote on the renewal of the Ex Im Bank in June prior to the expiration of its charter. Rep. Jim Jordan (R OH), chair of the House Freedom Caucus, is negotiating with House Republican leaders saying he may bring in votes. The group is opposed to extending the Ex Im Bank, whose charter expires on 30 June, wants a separate TPA vote from the Trade Adjustment Program (TAA) a key element for many Democrats and wants giving all members of Congress more power to take away fast track protection to trade agreements. 1

2 Senate Majority Whip John Cornyn (R TX) said on Tuesday 2 June the most likely vehicle for legislation reauthorizing will be attached to the highway funding bill in July. On Wednesday 3 June, the Senate Banking Committee held a hearing on the future of the Ex Im Bank, as promised to Sen. McConnell, where Sen. Richard Shelby (R AL) said he was not sure whether his committee would mark up a bill. Republicans want a major reform of the bank or even better, close it. Democrats want to preserve it. There are two more hearings scheduled on Wednesday 3 and Thursday 4 June. Meanwhile, the customs and enforcement bill approved by the Senate has emerged as the vehicle to fix problems along the way. Sens. Orrin Hatch (R UT), chair of the Senate Finance Committee, and Ron Wyden (D OR), the ranking member of the committee, stroke a deal with Rep. Ryan to include a modified version of Sen. Robert Menendez (D NJ) human trafficking amendment in the customs bill. Rep. Ryan said he also plans to include, among others, a Hatch Ted Cruz amendment to ensure trade agreements do not change immigration law. The customs bill as passed by the Senate also includes provisions aimed at China s alleged currency manipulation. Differences between the TPA versions approved by the Senate and the House of Representatives will be resolved in a bicameral conference. Trans Pacific Partnership (TPP) 1) Labor emerges as the latest issue of contention: The AFL CIO has threatened to release its analysis submitted to the USTR of the TPP, as required by being a member of the Labor Advisory Committee on Trade Negotiations (LACTN), after its President, Richard Trumka, said on Friday 29 May the USTR undermined the labor sector's ability to advise the Obama administration on TPP by not providing fully updated negotiating texts. Mr. Trumka and 22 other labor leaders sit on the committee cleared to review and provide input to the government about US negotiating proposals on trade negotiations. The AFL CIO complaints, among other things, that the text under negotiation is filled with words like should, endeavor, encourage and other similar terms instead of more robust wording. Last month, a group of 22 Democratic Senators sent a letter to USTR Michael Froman and Labor Secretary Tom Perez asking to release the AFL CIO opinion on TPP. The LACTN is scheduled to meet on Monday 22 June The AFL CIO is also planning to submit a more detailed document to members of Congress providing input on specific TPP provisions prior to the House voting on fast track legislation. The organization is also targeting Democrats who dare to support the Obama trade agenda. On Wednesday 3 June, USTR Michael Froman and Labor Secretary Thomas Perez met for an hour and a half with the House Democratic Caucus to discuss labor conditions in the TPP. At the end of the meeting, some Democrats were unhappy to find out there is not an Administration plan to address labor issues in Vietnam and Mexico. 2) Australia wants greater access to the Canadian wine market: Australia and other countries want Canada to provide in the TPP similar concessions for its wine industry as those in the CETA, according to the Canadian Press. Canada is fighting back. CETA removed several non tariff barriers and add on service fees imposed on European wine and spirits exports. It also eliminated a federal requirement that all imported foreign spirits be blended with Canadian spirits. Trade officials in Ottawa have asked the provinces if they might be willing to grant some concessions. These include granting some TPP countries most favored nation status on elements of the CETA wine and spirits outcome. The Canadian wine industry seems to have expected this request after CETA. 2

3 3) New USTR report: On Tuesday 2 June, the Office of the USTR released a new report detailing some of the highest tariffs imposed on US exports in TPP countries, including the 778% Japanese tariff on US rice. We have an average applied tariff of 1.4% on foreign goods and today nearly 70% of all imports entering the United States do not face any tariffs, the report says. The USTR unveiled the report as leaders of the House of Representatives are still deciding when to bring for a floor vote the TPA bill. 4) WikiLeaks offers US$100,000 for TPP text: On Tuesday 2 June, Wikileaks published an add asking for donations and pay US$100,000 to whoever provides a full text of the current version of the TPP. Until Wednesday 3 June morning, there was US$36,000 in donations. Transatlantic Trade & Investment Partnership (TTIP) 1) International Trade Committee approves Lange report: On Thursday 28 May, the 41 members of the International Trade Committee of the European Parliament approved [28 13] a resolution in favor of the TTIP. The document states the position of the European Parliament (EP) for the TTIP negotiations and was drafted by Bernd Lange (Germany Socialists & Democrats), the chair of the committee, who received almost 900 amendments from 14 other committees. The resolution is scheduled to be voted by the 751 members of the EP on Wednesday 10 June. The resolution states the TTIP should deepen EU access to the US market, but must not undermine EU standards or the right to regulate in the public interest and the investor state dispute settlement mechanism (ISDS) should be reformed and improved. The text provides qualified support for the proposal offered by European Trade Commissioner Cecilia Malmström. The EU is trying to avoid the precedent set in the US Australia FTA, which entered into force on 1 January 2005, which excludes an ISDS. Australia argued its legal system was robust enough to resolve problems. The US says an ISDS is crucial in the TTIP to protect companies' investments. The ISDS has been opposed by the Socialists & Democrats, the largest parliamentary group. The approval was struck after a compromise on the ISDS between the European People s Party and the Socialists & Democrats. The resolution is non binding and is considered only as advice to the European Commission, who actually carries the negotiations. But the EP must ratify any trade agreement before it enters into force. In a heated debate that included several issues, MEPs urged negotiators to promote access to US LNG and crude oil, so that the deal adds to EU energy security and reduces energy prices. The TTIP should include a specific energy chapter, which must also help maintain the EU's environmental standards and climate action goals. Other recommendations include guidelines on data protection, opening the US transport and public procurement, penetrating the market for the supply of highly specialized services, such as engineering, financial and transport services, to keep an eye on labor rights, and suggestions to provide more transparency for MEPs and the public. 2) Member states need to show more leadership: Trade Commissioner Cecilia Malmström said on Monday 1 June member states needed to show more leadership in persuading citizens about the TTIP benefits. She added the next round will take place in July. In Germany, Europe's largest economy, 43% of the people think the TTIP would be "bad" for their country, according to a recent survey. Ms. Malmstöm was scheduled to meet on Tuesday 2 June with USTR Michael Froman in Berlin to take stock and while she expects the agreement could be signed under the Obama administration, she ruled out negotiations would be completed this year. They met last month in Washington, D.C. 3

4 3) Chancellor Merkel speaks in favor of the agreement: Angela Merkel tried to drum up support in Germany for the TTIP, saying in an interview on Saturday 30 May she hopes it will be finalized by Chancellor Merkel told the Sueddeutsche Zeitung newspaper it was important that talks between the EU and US lead to an accord before President Obama leaves office in January Without an agreement by early 2017 Merkel fears there could be "a long interruption" in the talks. "It's important for me that the transatlantic free trade keeps pace with the Pacific region," Merkel said, referring to the advanced stage of TPP talks. She acknowledged TTIP opponents in Germany saying "There's a concern whether our social and ecological standards will stay in place." Chancellor will host on Sunday 7 and Monday 8 June this year s meeting of the Group of 7 (more below) that includes France, Germany, Italy, the United Kingdom, Japan, the US and Canada. 4) TTIP debate in Berlin: German Trade Minister Sigmar Gabriel lashed out on Tuesday 2 June at the antitrade group Stop TTIP which organizes protests against the agreement. Critical questions need to be posed. But calling for stopping TTIP before we even had a chance to negotiate it means giving up, Gabriel said in Berlin. He appeared on the panel with USTR Michael Froman, EU trade commissioner Cecilia Malmström, and Bernd Lange, chairman of the International Trade Committee in the European Parliament. Green and left leaning opponents of the pact are furious about the compromise in the International Trade Committee of EP and have gotten louder in recent days. But backers of the deal said critics do not understand the need for US involvement to ensure fair world trade. Mr. Lange demanded that Malmström incorporate any changes in investment protection in a separate trade deal with Canada, although those negotiations have already formally concluded. He defended the resolution on TTIP that his committee adopted last week, saying that it marked a compromise with other political groups that clearly exclude private arbitration boards. World Trade Organization (WTO) Azevêdo is getting concerned: On Monday 1 June, all parties met in Geneva to discuss the current state of play in negotiations on the work program to advance the remaining issues of the Doha Development Agenda. Director General Roberto Azevêdo gave a detailed briefing on recent consultations, focusing on agriculture, industrial products and services. DG Azevêdo said he is becoming increasingly concerned that not enough progress is being made in those three areas. This was the seventh meeting of the full membership convened this year. DG Azevêdo added he will ensure that meetings of the full membership are held more frequently to ensure that members are fully briefed on all aspects of the negotiations. He said this measure will be essential to ensure that the necessary political calls can be taken in due course. Trade ministers of about 15 countries including Canada, Mexico, the US, the EU, Brazil, and China are expected to attend a meeting in Paris on Thursday 4 and Friday 5 June to finalize the agenda for the Nairobi ministerial meeting in December. Group of 7 (G 7) Agenda for the 2015 annual summit: The leaders of the seven leading industrial countries Canada, France, Germany, Italy, Japan, United Kingdom, and the US will gather in Elmau, Germany, on Sunday 7 and Monday 8 June for the annual meeting of the Group of 7 (G 7). Jean Claude Juncker, the President of the European Commission, and Donald Tusk, President of the European Council, will also attend. 4

5 The agenda set by the German G 7 Presidency focuses on the two major tasks facing the international community in 2015: i) the new sustainable development goals that will be set by the United Nations and ii) climate protection. For the first time in years, there is hope that the Paris conference in December will produce a climate agreement in which all countries undertake to reduce their emissions. This would take these countries closer to the G 7 goal of limiting the increase in global temperature to two degrees which all the experts say is the only way to keep it within reasonable parameters. The participants will also review progress of the major ongoing trade negotiations. The G 7 supports the WTO in its efforts to conclude the Doha Round as quickly as possible. Chancellor Merkel has stated several times that is necessary to have rapid progress in the TTIP. The Elmau summit will also cover how to combat neglected tropical diseases, the growing problem of antibiotic resistance, finding ways to cut the number of industrial accidents along the supply chain, how to put in place measures to prevent such accidents and ensure better health and safety at work, and ways to provide better working possibilities to women to establish their independence and ensure their advancement through safe and skilled labor. Country of Origin Labeling (COOL) Retaliation is still on the table: Canada and Mexico have not requested permission from the WTO to retaliate, which could amount to measures over US$2 billion a year. During the Friday 29 May WTO Dispute Settlement Body meeting, Canada hinted that it would give the US Congress time to fix the problem. It said retaliation was not its preferred route but said it would do so if necessary. The USTR said The administration is carefully examining the WTO s findings, and will consult closely with Congress and interested stakeholders on next steps. Once both countries file their retaliatory requests, it will set the stage for a two month long arbitration over that number, after which they would be allowed to raise tariffs to recoup those losses. Now that retaliation is on the table, the American Farm Bureau Federation has officially endorsed HR2393, the bill approved last month by the House Agriculture Committee to repeal COOL. HR 2393 is expected to go to the House floor next week with heavy Democratic opposition, while there has not been any action in the Senate Agriculture Committee. Canada s Agriculture Minister Gerry Ritz is traveling this week to Washington, D.C. to lobby Congress for the repeal of the COOL legislation. He said on Tuesday 2 June Canada is working on its list of US products that it may hit with tariffs. It includes beef and pork which lead to the dispute as well as California wines, mattresses, cherries and office furniture. Mexican authorities have been assessing the damage created by the regulation and seem to be waiting to issue a joint release with the Canadian government, according to Mexican industry sources. Regional Politics US nominates Ambassador to Mexico: On Monday 1 June, President Obama announced that he will nominate Roberta S. Jacobson, the top State Department official for Latin America and his point person in negotiations to re establish diplomatic ties with Cuba, to become the new US ambassador to Mexico. Ms. Jacobson is considered a Mexico specialist and a trusted official with allies in both political parties. She is considered to have been a key person in the US Mexico relationship over the past 15 years. Her work to restore diplomatic relations with Cuba could make her nomination a flash point for critics of President Obama s foreign policy. And her selection could also suggest that the talks on opening embassies in Havana and Washington are in their final stages, according to the New York Times. 5

6 If confirmed, Ms. Jacobson would be the first woman to serve as the ambassador to Mexico. The selection represents a change of approach for President Obama in choosing an envoy to Mexico. His initial pick for the post was Maria Echaveste, the daughter of Mexican immigrants and a former Clinton administration aide with no diplomatic background. Ms. Echaveste withdrew her name in late January after months of waiting without a hearing. The current ambassador, E. Anthony Wayne, requested in early 2014 to be replaced. He arrived in Mexico City on 11 September 2011 and has kept a lower profile than most of his predecessors. Mexican Foreign Affairs Secretary José Antonio Meade said the Mexican government welcomes the nomination. Mexico has not nominated a new candidate to become ambassador in Washington. The ambassadorship is vacant since Mr. Eduardo Medina Mora resigned on 10 March to become a judge in the Supreme Court. Among the long list of names mentioned there is the Secretary of the Economy Ildefonso Guajardo, the leader of the PRI in the Lower Chamber Manlio Fabio Beltrones, the Undersecretary for North America Sergio Alcocer, the Public Education Undersecretary Javier Treviño and even the Mexican consul in Los Angeles Carlos Sada. It is expected to have a nomination after President Peña Nieto comes back from a trip to Europe on 13 June. The Mexican Senate has to ratify the nomination. The Last One The personnel of the US and many other embassies in Mexico will be on call through the weekend because of the elections. 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. 26 1 July 2015 Jorge Molina jfmolinal@gmail.com twitter @jfmolinal This week Trade Promotion Authority (TPA) p. 1 Trans Pacific Partnership (TPP) p. 2 Transatlantic Trade