FLG Strategic Market & Government Advice

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1 The NASCO Weekly Report Vol. 1 No January 2015 Jorge Molina - jfmolinal@gmail.com TTP 1) It has been a most intense fortnight of bilateral meetings leading to next week s round in New York. According to government sources, this will be an informal meeting which will attempt to solve most political issues, while negotiation could actually finish at a mid-march ministerial. Japan s deputy chief negotiator, Hiroshi Oe, and acting deputy USTR Wendy Cutler held talks last week on farm and auto issues. Tokyo is seeking to keep tariffs on key farm products: rice, wheat, beef and pork, dairy and sugar. Last week, USTR Michael Froman was in Lima and earlier this week in Santiago and then flew back to Mexico City for meetings with Secretary of the Economy, Ildefonso Guajardo. Meetings will continue this weekend on the sidelines of the World Economic Forum in Davos, where Froman is scheduled to speak on Friday 23 January. The TTP will redefine NAFTA and most bilateral FTAs among the TPP members, like the Mexico-Japan, Mexico-Chile and Mexico-Peru agreements. Looking at the schedule, the agreement could be sent to the US Congress in June or July, after the legal scrubbing, and could be approved in late October or November. 2) US officials need to figure out a way to bring Vietnam s labor laws into compliance with the standards the US is pushing to include in the TPP, according to US Labor Secretary Tom Perez. US labor unions say Vietnam lacks the most fundamental labor rights and have raised concerns that Hanoi s participation in the TPP could fuel an offshoring of jobs by companies attracted to a country where wages are low and organized labor can t exist without government approval. Labor Department officials and from the Office of the USTR were in Vietnam two weeks ago. TTIP 1) Chief US negotiator Dan Mullaney, EU chief negotiator Ignacio García and the leaders of various chapters of the agreement are meeting this week in Brussels to prepare for the first formal round of talks, scheduled to start on Monday 2 February. Following those meetings, US Ambassador to the WTO, Michael Punke, met with European Commission Director-General for Trade Jean-Luc Demarty to discuss the status of the talks. Both officials oversee the negotiations for their respective sides. While there are still concerns regarding specific issues in the negotiation, the largest European economies are in favor of reaching an agreement in principle by the end of the year, particularly as TPP negotiations are expected to finish by mid-year (see above) and next year s US Presidential elections, scheduled for Tuesday 8 November While it is considered the European position is based on the agreements reached in the CETA, with Canada, the TTIP will set major guidelines for future trade agreements among the largest economies. 2) The report on the 150,000 comments received on the investor-state dispute settlement mechanism (ISDS) highlighted four areas where the mechanism could be improved: 1) the protection of the right of a government to regulate, 2) the establishment and function of ISDS panels, 3) the relationship between domestic judicial systems and ISDS, and 4) the ability to appeal ISDS decisions. The report also included a discussion on the definition of various terms, such as "fair and equitable treatment," and whether certain sectors, such as health and education, should be exempted from ISDS. The full text of the report may be provided to those interested. 1

2 3) President Obama and UK PM David Cameron met at the White House on Friday 16 January. Both said they would press forward to achieve significant progress in 2015 with TTIP negotiations, while Cameron insisted on behalf of several other European leaders to reach an agreement in principle by the end of this year. 4) A broad alliance of farmers, ethical consumers, and anti-capitalist activists staged a march last week through Berlin that claims to have gathered up to 60,000, to denounce the proposed agreement. More than 120 organizations joined the fifth annual We are Fed Up! demonstration, which this year focused on the increased importation of American farming practices such as genetic modification, frequent antibiotic injections for animals, and chemical meat treatments following the implementation of the controversial treaty. Europeans believe Americans are obese and disfigured due to consumption of "Frankenstein food", an unnatural GMO food, heavily injected with chemicals. The march included 80 tractors of angry farms. 5) A document released by the chairman of the European Parliament's International Trade Committee set to be discussed at a panel hearing on 21 January offers a new signal the legislature could be open to approving the agreement even if it includes the controversial ISDS mechanism. WTO 1) Preparations continue during the week for the weekend meeting of 20-some trade ministers with DG Azevedo. The US, Canada, Mexico and India are among those who will attend. There will be several other informal meetings during the week in Davos. 2) The Appellate Body released a decision shooting down all of Argentina s arguments in a dispute with the US, EU and Japan over a wide swath of import restrictions. Argentina s protectionist measures impact a broad segment of US exports, potentially affecting billions of dollars. The WTO also faulted Argentina for other import restrictions, including conditioning a company s imports on an equal or greater value of exports, limiting the volume of imports or reducing their price, requiring investment in Argentina and mandating local content in domestic goods. COOL Following a request from Canada and the US, the WTO Appellate Body Division has decided to open the oral hearing on 16 and 17 February 2015 to public observation via simultaneous closed-circuit broadcast to a separate viewing room in the WTO headquarters in Geneva. Applications will be accepted until 5 p.m., Geneva time, on Wednesday 4 February NAFTA Canada is the most-sued country under the North American Free Trade Agreement and a majority of the disputes involve investors challenging the country s environmental laws, according to a new study from the Canadian Centre for Policy Alternatives (CCPA). Since 2005, more than 70% of claims have been brought against Canada. The CCPA believes the federal government s strong commitment to Chapter 11 and its willingness to settle and compensate claimants is encouraging more cases against Canada. There were 12 cases brought against Canada from 1995 to 2005, while in the decade since there have been 23. The 35 claims brought against Canada comprise 45% of the total number of claims under NAFTA. That s significantly more than Mexico s 22 or the 20 brought against the US. 2

3 Canada has lost or settled six claims paying a total of $170 million in damages, while Mexico has lost five cases and paid out $204 million. The US has won 11 cases and has never lost a NAFTA investor-state case. There are currently eight cases against the Canadian government asking for a total of $6 billion in damages. All of them were brought by US companies. CETA Newfoundland and Labrador pulled out of ongoing trade talks on Monday 19 January as it ramped up its fight with Ottawa over a promised fishery fund tied to CETA. Premier Paul Davis said his province's support for the agreement depends on the federal government delivering its share of that cash. Leaders from the rest of Atlantic Canada said they support the province's fight for what it was promised. The provincial government says Ottawa has reneged on a deal to pay $280 million in exchange for the province relinquishing minimum processing requirements as part of CETA. Those rules helped protect jobs in fish plants, especially in rural areas hit hard by the cod moratorium since Business groups that want tariff-free access to lucrative European markets weren't happy. WEF The ten topics the WEF identified to organize its work in no particular order and the 2015 program, are: 1) Deepening income inequality, 2) Persistent jobless growth, 3) Lack of leadership, 4) Rising geostrategic competition, 5) Weakening of representative democracy, 6) Rising pollution in the developing world, 7) Increasing occurrence of severe weather events, 8) Intensifying nationalism, 9) Increasing water stress, and 10) Growing importance of health in the economy. The 2015 Outlook report has been released and may be found at TPA 1) The first window for passing the TPA legislation will likely be in March, as busy floor and committee schedules will likely prevent the bill from coming up in February, according to sources. The House Ways and Means Committee is expected report out a clean TPA bill, with no other trade legislation attached. In one scenario, the Senate could pass all the other pending trade legislation, such as the Generalized System of Preferences, together in a package, while the House passes TPA. Then, each chamber in turn would pass the legislation from the other. 2) Thirty five minutes into his speech, and for twelve more, President Obama made his case on behalf of TPA and the approval of the TTP and the TTIP. In the past, US Presidents have very seldom spoken about international trade affairs. President Obama said that 95% of the consumers of US good live abroad. This year, the White House followed a new strategy, having the President to speak about the key topics of the State of the Union Address in several occasions across the country, where trade was one of them. 3) House Ways and Means Committee Chairman Paul Ryan (R-Wis) said he wants to move quickly on TPA and that it was premature to say how closely the bill would resemble the one introduced last year by former Senate Finance Committee Chairman Max Baucus (D-Mont), former House Ways and Means Committee Chairman Dave Camp (R-Mich) and current Finance Chairman Orrin Hatch (R-Utah). "We're still talking. Sen. [Ron] Wyden (D-Ore.) has some issues he wants to work out, he said. Republicans on the House Ways and Means Committee are going on a retreat to discuss plans for the year. That s in addition to the retreat that all Republicans in the House and the Senate had in Hershey, Pa. 3

4 4) Ways and Means Committee Chair Paul Ryan (R-WI) issued the following statement in response to President Obama's State of the Union address: The President said he wants to work with Congress, and I want to take him up on that offer. But to make real progress, we have to focus on finding common ground not issues that only divide us. I was glad to hear the President ask Congress to pass tradepromotion authority. We simply can t get the best trade agreements for the American people without it. Now the President needs to follow through. He needs to convince his party to vote for TPA and soon. Ways & Means has scheduled a hearing for 27 January at 2 pm with USTR Michael Froman on the US Trade Policy Agenda 5) The Senate Finance Committee holds a hearing on Thursday 22 January, "Jobs and a Healthy Economy," where TPA is expected to come up. Witnesses include John Engler, president of the Business Roundtable. The hearing comes two days after Senate Finance Chairman Orrin Hatch (R-Utah) laid out his committee's agenda at the US Chamber of Commerce. 6) US business groups are increasingly optimistic about TPA, but they re not taking that for granted. The Business Roundtable is reaching out to freshmen and other members of Congress to explain why the legislation is needed to wrap up new market opportunities and US Chamber of Commerce President Tom Donohue said he is optimistic the votes are there in Congress to get TPA through this year. The US Chamber of Commerce is working at the grass-roots level to build support for the bill, rather than focus all of its energy in Washington. The Trade Benefits America Coalition which includes companies like 3M and Boeing and organizations such as the National Association of Manufacturers, urged congressional leaders to pass TPA early this year. The group argues the legislation will help trade negotiators get a better deal in ongoing negotiations and that it will facilitate Congress role in those deals. The US Chamber of Commerce said other trade priorities that should be addressed in the TPA bill, are a revised Information Technology Agreement, a Trade in Services Agreement and a Bilateral Investment Treaty with China, as well as successful implementation of the WTO s Trade Facilitation Agreement, customs reform and reauthorization of the Export-Import Bank. Currency manipulation remains a hot issue, which could be implemented in several ways. Public Citizen released a new report that argues past trade policies have undermined US prosperity. Energy 1) House Republicans introduced a new version of LNG export legislation that cleared the House last year. H.R. 351, the LNG Permitting Certainty and Transparency Act, would place a 30-day deadline on DOE to issue a final decision after the completion of NEPA reviews for proposed facilities. Sponsor Bill Johnson (R-Oh) says he already has co-sponsors from both parties behind the bill. Rep. Mike Turner (R- Oh) earlier this week introduced a bill that would automatically approve applications to export to WTO members. And in the Senate, John Barrasso (R-Wy) and Martin Heinrich (D-NM) have floated legislation placing a 45-day deadline on DOE, and Senate Energy and Natural Resources Chairwoman Lisa Murkowski (R-Alaska) is planning a hearing on the topic later this month. 2) Senate Democrats are trying to try force Republicans into an awkward vote on climate change before the GOP can push through a bill to approve Keystone XL. The Senate is expected to debate amendments and Democrats hope to pin down Republicans from swing states who face reelection in 2016, such as 4

5 Sens. Kelly Ayotte (R-NH) and Mark Kirk (R-IL), on whether they believe that burning fossil fuels plays a role in climate change. The US Chamber of Commerce said the chamber they will continue advocating clearance for the Keystone XL pipeline, and urged changes in export rules so that domestic oil can be exported. Tom Donohue, the president of the organization, said that energy development can deliver hundreds of billions of new dollars to government coffers and that would be a nice down payment on our rapidly growing bill for entitlements. 3) Mexican officials have decided to move ahead with Round One, despite international oil prices making some projects doubtful. Energy Secretary, Pedro Joaquín Coldwell, and Pemex General Director, Emilio Lozoya, will be in Davos all week for the World Economic Forum to reassure potential investors and develop a new road show in European cities. Recently, some Colombian firms have shown interest. Maritime Sen. John McCain (R-Ari) filed an amendment to repeal the Jones Act, a measure requiring all goods shipping between us waterborne ports to be carried by vessels built in the US and owned and operated by Americans. The measure was criticized during the recent WTO Trade Policy Review. Sen. McCain is seeking to attach an amendment to the Senate s Keystone XL pipeline bill. The commandant of the Coast Guard, Adm. Paul Zukunft, argued that repealing it would jeopardize the US fleet of trade vessels. Mexico-Queretaro High Speed Train As scheduled, the Mexican Secretariat of Communications and Transportation (SCT) released the new rules for the process to bid on the high-speed train between Mexico and Queretaro. There are some significant differences vis-à-vis the first process: 1) interest parties may submit comments until 29 January, 2) bidding companies must have at least five years of experience in projects involving trains speeding over 300 km/hr., and 3) bids must be submitted by 14 July and the final decision will be announced on 31 July, this is, five and half months after their release instead of only two months in the previous process. The technical specifications remain the same for the 210 km project. Buy America Laws The conservative group Club for Growth has issued a key vote alert, calling on members of Congress to defeat an amendment proposed by Sen. Al Franken (D-Minn) that would require the Keystone XL pipeline, if approved, to be built with products made in the U.S. The last one November sounds like the date for the postponed North American summit... Will the Keystone XL Pipeline will be approved then? Will Mexicans continue to require visas to travel to Canada? One more 5.36 billion pesos (more than US$357 million) for political parties in Mexico in 2015 Or two This an excellent speech where US Assistant Secretary Charles Rivkin explains the relevance of international trade and economics in current foreign policy 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. 5