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This Week In Trade

U.S., Mexico said to strike a deal; WTO set to lose its appeal function

Posted: December 09, 2019

The U.S. and Mexico have struck a deal on changes to the U.S.-Mexico-Canada Agreement, according to the Mexican president, putting the Trump administration’s signature trade pact one step closer to ratification. Meanwhile, in Geneva, the World Trade Organization’s appellate mechanism is set to grind to a halt this week.

As if that's not enough, U.S. and Chinese negotiators have less than a week to strike a “phase-one” trade deal before the Trump administration's Dec. 15 deadline for new 15 percent tariffs on $160 billion worth of Chinese goods.

U.S. and Mexican negotiators met over the weekend and have reached an agreement on changes the U.S. proposed to USMCA. Those changes were the outcome of extensive negotiations between U.S. Trade Representative Robert Lighthizer and House Democrats.

“The time is upon us. In a very respectful way, I would solicit [House Speaker Nancy Pelosi (D-CA)] to decide on this matter,” Mexican President Andrés Manuel López Obrador told reporters on Monday. “We have already fulfilled our obligations and we consider it to be a good agreement.”

That deal includes the addition of a “melted and poured” provision to USMCA’s rules of origin and is expected to reduce data exclusivity protections for biologics. Mexican officials have also said the deal will include a fix to USMCA’s dispute settlement system.

AFL-CIO President Richard Trumka told The Washington Post on Monday that he would discuss the proposed changes with his executive committee on Monday afternoon. The AFL-CIO is seen as a key constituency for Democrats.

“We have pushed them hard and have done quite well,” Trumka said in an email to the Post.

The U.S.-Mexico deal could give hope to USMCA proponents that USMCA can be ratified by Congress this year. The administration must submit a USMCA implementing bill to Congress on a day when both chambers are in session. The House is scheduled to be in session through next week. The Senate calendar says the chamber is slated for a “state work period” starting next week, but that could soon change as the government is only funded through Dec. 20.

WTO crisis reaches peak

The U.S.’ two-and-a-half-year strategy of blocking appointments to the Appellate Body comes to fruition on Tuesday as the terms of two of the three remaining members of the panel expire, leaving the body without a quorum. The WTO holds its last General Council of the year this week, and the future of the Appellate Body will be the central focus.

Dennis Shea, the U.S. ambassador to the WTO, has said the U.S. will not accept a draft General Council decision that would establish guidelines for how the Appellate Body should operate because it does not address the underlying question of why the Appellate Body has strayed from its mandate.

Without an Appellate Body, the WTO may lose its ability to adjudicate trade disputes. The Dispute Settlement Body cannot adopt a dispute settlement panel decision if a party chooses to appeal it, meaning that a WTO member would be able to maintain WTO-inconsistent measures without facing retaliation because the dispute settlement process would be incomplete.

The European Union and others are attempting to establish a stopgap appellate process centered on the use of Article 25 of the Dispute Settlement Understanding, which establishes procedures for expeditious arbitration. But the successful functioning of such an arrangement would rely on both parties agreeing to those procedures. If a member does not want to submit to the arbitration process and instead files for appeal, the case will not be heard and no decision will be rendered.

The General Council this week also is expected to discuss the fate of the WTO’s moratorium on e-commerce duties. Some members believe the moratorium expires at the end of the year due to the wording of the December 2017 ministerial decision. The moratorium typically has been extended via biennial ministerial decisions. The 2017 decision reads: “We agree to maintain the current practice of not imposing customs duties on electronic transmissions until our next session which we have decided to hold in 2019.”

The next ministerial conference will be held in June 2020 rather than 2019, however, leaving the fate of the decision up in the air. Some WTO members, including India, Indonesia and South Africa, want to impose e-commerce duties. Decisions to extend moratoriums must be approved by consensus -- as they have in the past in part because of their political link to a moratorium on non-violation claims under the Agreement on Trade-Related Aspects of Intellectual Property.

Inside U.S. Trade’s Hannah Monicken is in Geneva this week covering the latest WTO developments.

China tariff deadline looms

The U.S. has pledged to impose tariffs on $160 billion worth of Chinese goods on Dec. 15, a “logical” deadline for the two sides to reach a phase-one deal, Commerce Secretary Wilbur Ross said last week. The U.S. and China are at odds over the level of tariff rollbacks in the deal and the amount of U.S. agricultural goods China will commit to buy.

National Economic Council Director Larry Kudlow last week said negotiators were working “around the clock” and dismissed the notion of any “arbitrary deadline."

“The final strokes are not there, we’re coming down to short strokes,” he said. “Now, some of the most delicate matters have to be adjudicated, discussed, analyzed and evaluated. And then it will be presented to President Trump, and he’ll take a look at it.”

Events

  • The French and Estonian ambassadors to the U.S. on Monday will discuss the trans-Atlantic partnership in 2020 during an Atlantic Council event.
  • Rep. Stephanie Murphy (D-FL) on Tuesday will host a briefing on the WTO crisis with National Association of Manufacturers Vice President of International Economic Affairs Policy Linda Dempsey; Council on Foreign Relations fellow and former Appellate Body member Jennifer Hillman; former USTR Associate General Counsel Stephen Kho; and senior Peterson Institute for International Economics fellow Jeffrey Schott. The briefing is the second installment of what Murphy calls her “Congressional Trade Series."
  • The Business Roundtable will release the results of its fourth-quarter CEO economic outlook survey on Wednesday.

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