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This Week In Trade

EU approves mandate for U.S. talks as Japan negotiations begin

Posted: April 15, 2019

Negotiations between the U.S. and European Union could soon be underway, as EU member states on Monday formally authorized the EU Commission to seek a limited trade deal with the U.S. First up, though, is the launch of trade talks with Japan this week.

Meanwhile, the U.S.-Mexico-Canada Agreement will take another step toward ratification when the U.S. International Trade Commission submit its report on the economic effects of the deal to Congress and the Office of the U.S. Trade Representative by the end of the week.

EU member states cleared a final procedural hurdle when agriculture ministers voted in favor of a mandate for EU-U.S. talks. The mandate conditions the completion of any agreement with the U.S. on the Trump administration's lifting of Section 232 tariffs on steel and aluminum. Canada and Mexico have also demanded the U.S. lift its Section 232 tariffs on their exports before either government ratifies USMCA, but the Trump administration to date has been loath to do so.

The EU mandate also says a trans-Atlantic deal should include a provision that allows the EU to unilaterally retaliate if the U.S. imposes any Section 232 or Section 301 tariffs on European goods. And, if the U.S. imposes any such tariffs during the talks, the Commission “shall suspend the negotiations,” according to the mandate. The U.S. recently announced its intent to retaliate against the EU via Section 301 for not complying with a World Trade Organization ruling on its subsidies to Airbus, though the Office of the U.S. Trade Representative said it would wait for the authorization of the WTO arbitrator before retaliating. The arbitration panel is not expected to finish its work in 2019.

The negotiations will be the first since the U.S. and EU failed to complete the Transatlantic Trade and Investment Partnership, for which talks were launched in 2013 before stalling in 2016. The failure of those talks is one of the reasons the EU has been insistent that agriculture and procurement -- two of the most problematic issues during the TTIP rounds -- be left out of the scope of the new trans-Atlantic negotiations. U.S. officials have said agriculture must be included in the talks if the deal has any hope of passing Congress.

France, citing the Trump administration’s decision to withdraw from the Paris Climate Agreement, did not support the adoption of the negotiating mandate. A final deal must be approved by all EU member states.

Japanese Economy Minister Toshimitsu Motegi is in Washington, DC, to meet with USTR Robert Lighthizer on Monday and Tuesday for a first round of bilateral trade talks with the U.S. The talks are the first high-level meetings called to determine the scope of what could be included in a free trade deal between the two countries.

Treasury Secretary Steven Mnuchin told reporters on Saturday that a currency provision would be a “priority” for Washington in its talks with Tokyo, saying a proposal would be tabled to ensure countries “don't in any way manipulate their currency for purposes of competitive advantages.”

“I think we’ll want to make sure whatever trade agreements there are, that there are currency provisions that reflect that in the agreement similar to USMCA and as we’ve alluded to in our China discussions,” Mnuchin told reporters on the sidelines of the spring meetings of the International Monetary Fund and World Bank, according to the Japan Times.

Last week, Japan reportedly finalized topics it intends to discuss with the U.S. for an FTA on goods and some services, but will plan to rebuff any requests for auto restrictions -- including quotas -- or currency provisions, according to Japanese media reports. The U.S. has pushed for a deal to include services, while Japan initially sought an agreement that covered only goods.

The ITC’s report on the economic implications of USMCA is due by Friday, and lawmakers are not expecting it to show the deal will create much, if any, gross domestic product growth. USMCA supporters point to aspects of the deal, such as its digital trade chapter, that are not easily quantifiable as economic benefits but are still important improvements over the status quo.

Canadian Foreign Affairs Minister Chrystia Freeland announced this week that Canada would appeal the WTO’s ruling last week that found the U.S. practice of “zeroing” allowable under certain circumstances. The WTO panel disagreed with a previous Appellate Body ruling that found Commerce’s use of zeroing in targeted dumping cases was in violation of WTO rules.

“Canada will be appealing the WTO panel’s separate findings on the U.S. practice of zeroing and its use of the differential pricing methodology,” Freeland said in a statement on Monday. “The WTO has ruled more than 20 times that zeroing, a method of calculating and applying artificially high and unfair duty rates, is inconsistent with WTO rules.”

The Treasury Department’s biannual report on the foreign exchange practices of major trading partners is due this month. The reports typically are released in mid-April and mid-October each year; last April’s report was issued on April 13. The Trump administration has not yet formally labeled any of the U.S.’ major trading partners a “currency manipulator” in the Treasury reports.

Assistant U.S. Trade Representative for South and Central Asia Christopher Wilson will take part in a discussion on Friday to discuss the state of affairs in south and central Asia. -- Brett Fortnam (bfortnam@iwpnews.com) with Isabelle Hoagland (ihoagland@iwpnews.com)

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