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. 1 Transatlantic Trade & Investment Partnership (TTIP) p. 4 World Trade Organization (WTO) p. 4 Comprehensive Trade & Inv. Agreement (CETA) p. 5 Country of Origin Labeling (COOL) p. 5 Energy p.6 Customs p. 6 The Last One p. 6 Trade Promotion Authority (TPA) 1) Customs bill still to be settled: Since last week, House Majority Leader Kevin McCarthy (R CA) has included in his weekly agenda the possibility of moving to conference to iron out the differences between the versions approved by the House and the Senate of the Customs Bill (HR644). Democrats want to keep language inserted by Sen. Chuck Schumer (D NY) that would allow the Commerce Department to counteract currency manipulation through anti subsidy investigations and want the removal of House language addressing immigration policy or climate change. It is expected the bill will be settled by Thursday 30 July, before the Congress adjourns for the summer recess. Reps. Ron Kind (D WI) a key player in the approval of the trade package and Earl Blumenauer (D OR) wrote on Monday 13 July a letter to the conferees urging lawmakers to consider their priorities. 2) Industry groups in favor of keeping MTBs: On Monday 13 July, the National Association of Manufacturers and more than 50 other trade associations sent a letter to the chairs of the House Ways and Means Committee and the Senate Finance Committee, Rep. Paul Ryan (R WI) and Sen. Orrin Hatch (R UT) respectively, calling to keep provisions from the Senate version that would reform the process for approving miscellaneous tariff bills (MTBs), which eliminates tariffs on hard to find industrial imports. The group wants to keep language that will make the process to consider and enact MTBs transparent, objective, predictable and regular. Rep. Kevin Brady (R TX), a Ways & Means Committee member, said in an interview last week it was very hard to know whether such language may remain in the final version. Trans Pacific Partnership (TPP) 1) Japan and the US set to finish their negotiation at the Hawaii Ministerial: After two days of negotiations on Thursday 9 and Friday 10 July in Tokyo, Japan and the US ended their working level talks by agreeing to settle the proposed rice import quota and other issues on auto trade at the upcoming Ministerial Meeting in Hawaii. Japanese deputy chief negotiator Hiroshi Oe told reporters on Friday his country expects to finish the agreement then. Acting Deputy USTR Wendy Cutler said both sides have found potential common ground on the rice issue which needs to be discussed at the ministerial level. Washington seeks a rice quota of 175,000 tons, while Tokyo wants to limit the amount to 50,000 tons. Japan now thinks it inevitable to set a similar quota for Australia. Tokyo is examining how much it can boost duty free imports from the two countries while domestic demand for rice keeps falling. Mr. Oe and Ms. Cutler plan to meet again for final adjustments ahead of the Hawaii meeting. Japan also wants the US to increase its imports of Japanese beef from 200 tons to 2,000 tons to help alleviate the negative impact on its farmers. 1

2 2) Nothing is agreed until everything is agreed: Deputy chief negotiator Hiroshi Oe said that "it may take till midnight of (Friday) 31 July before everything starts falling into place," referring to the last day of the TPP ministerial meeting in Hawaii. Japan's Economy Minister Akira Amari said there is about a 70% chance for a broad agreement among ministers. The US declined to make a comment. "Many of the outstanding issues are also linked to our discussions with other countries as well as on the overall TPP negotiations," said Wendy Cutler. She was apparently referring to butter and other dairy products, which New Zealand and Australia are pushing hard for. An agreement in Hawaii is also important for Japan and the US to demonstrate they can provide leadership in the Pacific region. Taiwan, South Korea, Costa Rica and Panama are among the countries who want to join the agreement. USTR Michael Froman traveled this weekend to Malaysia for negotiations and will be later in Singapore until Wednesday 15 July. 3) Japan, US talk about finishing TPP without some nations: On Tuesday 14 July, Minister Akira Amari said one possible option is to reach a broad agreement without some countries which are unwilling to end negotiations at the Hawaii meeting because we can t afford to let the TPP go adrift for their sake. Minister Amari did not name those countries but it was inferred he was talking about Canada and New Zealand. It is an option for those countries to join later, Minister Amari said. Minister Amari said the four day session starting Tuesday 28 July needs to be the last ministerial meeting. In case the negotiations continue beyond Saturday 15 August it would be practically impossible for the US Congress to approve the agreement before the end of the year and the process would go into 2016, when the US Presidential election process will take center stage. Reuters reported the Office of the USTR is frustrated over the lack of progress with Canada over agricultural trade and is weighing "contingencies" that could include completing the agreement without Canada. A group of US senators met with USTR Michael Froman on Thursday 9 July and urged him to move forward on TPP without Canada unless a serious offer on dairy, poultry, and agriculture market access was made. Froman responded that he preferred to move forward with Canada, but added that the US is "preparing for all contingencies." On Wednesday 15 July, a group of 21 House members makers, including Reps. Paul Ryan (R WI), chair of the House Ways & Means Committee, and Kind and Agriculture Chairman Rep. Michael Conaway (R TX), warned Canada it could be dropped from TPP if it does not open its market to more dairy products in a letter sent to Canadian Ambassador Gary Doer. Canadian Trade Minister Ed Fast has been pushing back at the US efforts to make Canada describe how it might open dairy and poultry markets to more foreign competition, saying he will not be drawn into public negotiations. In recent weeks, senior US officials have made high profile statements in the press calling on Canada to lay out what kind of access it will grant foreign milk and poultry producers to Canadian markets. The Conservative government is aware any concession could be politically damaging. Minister Fast said Canada has a clear strategy at the talks, which he won t divulge, but said all of Canada s farm sectors must benefit from a deal. Minister Fast added he cannot say whether the Hawaii gathering will produce an agreement. He noted deadlines for a deal have repeatedly slipped. 2

3 4) It is possible the US Congress will consider the TPP in the fall: Rep. Paul Ryan said over the weekend a realistic time to approve the agreement would be late fall. The TPP can pass Congress if they negotiate a very good deal. Rep. Kevin Brady (R TX), a member of the Ways & Means Committee, said on Wednesday 15 July that TPP supporters should start their push right after the customs conference which should take place before the end of the month to combat opposition efforts by unions and other groups. Rep. Brady said he thinks the political dynamics of TPP would be different from those of TPA because Democrats will have specific economic benefits in their districts that local industries will support, and Republicans won't be able to use arguments used during the TPA debate. The Advisory Committee for Trade Policy and Negotiations, President Obama s top trade advisory group, is scheduled to meet on Tuesday 8 September, the same day Congress returns from the summer recess, when it could begin work on a key report explaining the economic impact of the TPP. The committee must send the report required by law to President Obama, Congress and the USTR within 30 days once President Obama notifies Congress that he intends to agree to the TPP providing an opinion whether the agreement fulfills congressional negotiating objectives. 5) Reaction on upgrade of Malaysia on human rights: The announcement on Wednesday 8 July that Malaysia would be upgraded from tier 3 to tier 2 in the US State Department (DOS) "Trafficking in Persons" report was heavily criticized. Malaysia was downgraded last year to tier 3 alongside North Korea, Syria and 20 other countries citing "limited efforts to improve its flawed victim protection regime" and other problems. A provision in the TPA passed by Congress last month barres from fasttracked trade deals Malaysia and other countries that earn the worst U.S. human trafficking ranking in the eyes of the DOS. A bipartisan group of 19 senators, including Sens. Robert Menendez (D NJ), who introduced the issue in the TPA debate, and Ron Wyden (D OR), the ranking member of the Finance Committee, and others who voted in favor of TPA, called on DOS Secretary John Kerry on Wednesday 15 July not to upgrade Malaysia in its human trafficking report in a letter. Earlier this year there were 139 graves discovered in Malaysia in smuggling camps in the jungle near the northern border with Thailand. The State Department report was expected to be published this week, but it seems it will be published until the next one. Of the 12 TPP countries, Brunei and Vietnam have also come under attack by human rights groups. Sen. Menendez said that if DOS makes the change he ll talk to members of the conference committee on the pending customs bill (see above) to keep his original TPA language barring fast track procedures on deals with Tier 3 countries. The customs bill contains a compromise that would change the TPA bill to preserve fast track protection for agreements with those countries if the president sends a letter documenting that they ve taken concrete actions to implement the main recommendations in the DOS latest report. Sen. Wyden, who will participate in the customs bill conference, expressed concerns about the upgrade in a meeting last week with USTR Michael Froman. 6) AFL CIO sets a list of TPP conditions: In a letter signed by AFL CIO President Richard Trumka dated Monday 13 July and sent to every member of Congress, the labor federation asked each legislator to make sure that TPP lives up to its promise of being the most progressive trade deal in history. Mr. Trumka outlined a long list of things he said the TPP deal needs to include: enforceable currency provisions, removal of the investor state dispute settlement mechanism, emissions standards to combat climate change, guarantees that Vietnam and Mexico will improve their labor rights before receiving the 3

4 benefits of the deal, and clear rules on state owned enterprises that allow US companies to pursue damages before they become decimated, among others. Click here to see the letter. 7) Rep. Levin on Mexico s labor regime: On Friday 10 July, Rep. Sander Levin (D MI), the ranking member of the House Ways & Means Committee and one of the TPP s most vociferous congressional opponents, argued in a blog post that Mexico has not improved its labor record since NAFTA because of shadow unions, biased labor boards, manipulation of the union registration process and continued child and forced labor that are threatening to undermine US workers and jobs. The net result of Mexico s massive labor standards 'fail' is that low cost labor in Mexico remains low cost. Rep. Levin said that Mexico has seen a spike in the overall productivity of its manufacturing sector that has been fueled by a continual slippage of wages, creating a sort of productivity paradox that has made the country a viable destination for foreign investment, particularly in the auto sector. Transatlantic Trade & Investment Partnership (TTIP) 1) 10 th round takes place this week: The 10th round started in Brussels on Monday 13 and will finish on Friday 17 July. The Directorate General for Trade of the European Commission also organized a stakeholder event on Wednesday 15 July to ensure that a plurality of interests is taken into account during the negotiations and beyond. EU chief negotiator Ignacio García Bercero and US chief negotiator Dan Mullaney attended the event and both will hold a closing press conference on Friday 17 July which will be streamed on line. Both sides are expected to make new offers to open their services markets to more bilateral trade and there is a long way to go on tariff negotiations. 2) EU Trade Commissioner meets with INTA: On Tuesday 14 July, EU Trade Commissioner Cecilia Malmström met with the 41 members of the International Trade Committee of the European Parliament to exchange views on the future trade strategy, which is intended to reformulate the EU s trade priorities. The European Commission aims to release an updated strategy for the EU's trade policy this fall in order to deal with the challenges resulting from geopolitical changes. INTA will hold a hearing on "The Future Trade Strategy" on Thursday 15 October ) David Cameron speaks in favor of TTIP: On Tuesday 13 July, PM David Cameron accused TTIP critics of inventing false scare stories in order to stop the agreement. PM Cameron conceded before Britain s business leaders that the agreement faced a big fight to overcome sustained attacks from the left wing and warned Britain would rue the day if we miss this opportunity to open up transatlantic markets. PM Cameron also defended his decision to promise a referendum on Britain s EU membership by 2017, arguing that ignoring the issue would have made it more likely the country would eventually exit. World Trade Organization (WTO) 1) Little chance of having the Doha Round work program by end of July: On Thursday 9 July, WTO DG Roberto Azevêdo said the plan to deliver a detailed and substantive work program by the end of July deadline on the Doha round of trade talks now appears unlikely and that not being able to agree on a basic outline sends a bad signal about the WTO s ability to do basic trade business. While India and other developing nations blamed industrialized nations for the failure, the US wants negotiations to finish in December. DG Azevêdo said members have made significant progress in understanding each other's positions, but it is not enough to provide a sufficiently clear roadmap on the way forward. Mr. Azevêdo outlined that "success in Nairobi remains the ultimate target of our work. Nairobi is about showing real and definite 4

5 progress in implementing the Bali decisions, delivering for developing and least developed countries, and delivering outcomes that allow us to conclude the Doha Development Agenda." Early this year DG Azevêdo announced that the Doha Round will be concluded at the 10 th ministerial conference beginning on 15 December. Mr. Azevêdo proposed a doability criteria with alternative approaches and alternative paths for accomplishing a clear, detailed, modalities like work program by end July. 2) International coalition asks for changes in the WTO agenda: A coalition of 341 civil society organizations from more than 100 countries sent a letter on Friday 10 July to WTO members demanding that governments stop negotiating on the current agenda and instead take up an agenda focused on food security and urgent development needs of countries to create global trade rules that facilitate development. The coalition argues that if here is not an agreement on food security this year many Asian and African developing countries who have public stockholding programs will be constrained from implementing best practices to reduce hunger on a massive scale and more poor people will go hungry. Comprehensive Economic & Trade Agreement (CETA) 1) Legal review to last beyond October: The Ottawa Citizen reported on Monday 13 July the legal review of the CETA which could be one of PM Harper main achievements will not be finished before the 19 October election and that it is possible that NDP or Liberal government could end up finishing what PM Harper started, if European lawmakers don t derail it first. This is not a surprise as the EU wants to include some changes in the text which was officially finished in 2013, particularly in investor state dispute settlement (ISDS), along the lines of the TTIP negotiations. It is hard to imagine the EP may approve the CETA with a different ISDS model, especially now that negotiations with Mexico are about to start and the relaunching of negotiations with Brazil. The Canadian position is that the CETA ISDS already addresses most of the concerns raised in the European Parliament and that both the CETA and the TTIP are different. The worst case scenario for Canada would be a demand to re open negotiations, which would represent a significant step back on something the Conservative government has declared all but finished. CETA is described by the Canadian government as the most ambitious agreement signed by Canada, which has already started a campaign to promote its potential benefits. The International Trade Committee of the European Parliament (INTA) was informed this week that among the priorities of the new Luxembourg EU Council Presidency, which will finish on 31 December, is to shape a reformed mechanism to settle investor state disputes along the lines indicated by the resolution approved by Parliament on 8 July. INTA was also informed that CETA will not reintroduce the previous ISDS via the back door and that talks were already under way between Canada and the EU on ways to include courts, judges, public hearings and appellate system in the mechanism. Country of Origin Labeling (COOL) 1) Senate still undecided on path to follow: On Tuesday 14 July, Sen. Sherrod Brown (D OH) said discussions within the Senate Agriculture Committee continue on how to deal with the WTO ruling and that it is still unclear where the issue will end up. Sen. Brown and most of the Democrats are against repeal of the legislation. Sen. Debbie Stabenow (D MI), the committee s ranking member, has proposed voluntary labeling to replace the mandatory requirement, but Canada and Mexico have indicated that approach will not be enough to stave off retaliation. The process continues at the WTO. 5

6 Energy 1) Iran deal should help to keep oil prices low: The agreement reached this week between the US and Iran should help to keep oil prices low as Iran should be able to start shipping oil onto the global market within months. The scenario is likely to make those arguing to end the 40 year ban on US oil exports to bring the case again before Congress. 2) Draft of US energy plan next week: Senate Energy and Natural Resources Chairwoman Lisa Murkowski (R AK) said on Wednesday 15 July that a small handful of outstanding issues remain in order to release a draft of a four tiered bipartisan energy package, which would move through her committee before the end of the month. Aides for Sen. Murkowski have been working with the staff of the committee ranking member, Sen. Maria Cantwell (D WA). Sen. Cantwell thinks the draft should be ready until next week. She said maybe there would be markups next week, a schedule that would be ambitious. 3) Round One did not fulfill expectations of the Mexican government: On Wednesday 15 July, only two of the 14 available blocks were awarded during the Round One auction, while the Mexican National Hydrocarbons Commission (known in Spanish as CNH) was expecting to award between four and seven of them. Both blocks (No. 2 and No. 7) were awarded to the consortium of Sierra Oil & Gas (Mexico), Talos (US) and Premier (UK), which are expected to invest approximately US$2.6 million. Nine of the 25 registered companies submitted bids. Exxon Mobile, Chevron and some of the larger companies did not submit a bid, while ENI, Statoil, Murphy and Petronas Carigali were short. Some observers noted that the high floor set by the Mexican Finance Secretariat prevented awarding at least three other blocks. Block 7 received the most bids (five) while there were no bids for blocks 1, 5, 8, 9, 10, 11, 13 and 14. Customs 1) Mexico and the US will further collaboration: Finance Secretary Luis Videgaray said on Friday 10 July that Mexico and the US are working together on several actions to make more efficient the transit of freight and persons. The changes approved in the Firearms Law will allow that in one step both the export and import formalities will be taken care of in three projects to be ready in the second half of the year. The first in Laredo, Texas, will make more expedite the importation of electronic inputs and parts for the auto and aerospace industries. Another in Tijuana will help the exportation of agricultural products and the third in Ciudad Juárez will boost exports of electronic and computing products. Secretary Videgaray also said almost US$563 million (M$9.3 billion) will be invested over the next 3 years in 33 projects to update customs. Customs are responsible for providing 66% of the total VAT. He added the Mexican government is working in the new Guadalupe Tornillo bridge in Ciudad Juárez and that in a few weeks the new rail crossing connecting Matamoros and Brownsville will start operating. The Last One Ms. Roberta Jacobson, nominated to become the next US Ambassador in Mexico, appeared today before the US Senate Foreign Relations Committee. We will take a two week break. Any opinions, positions or projections expressed in this report are that of FLG Strategic Market & Government Advice and do not represent those of NASCO. 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