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This Week In Trade

End Of Obama's Asia Trip, New Russia Sanctions, TISA, TTIP, Special 301

Posted: April 28, 2014

Posted: April 28, 2014

This week in trade brings an end to President Obama's visit to Asia, during which he worked to advance the negotiations with Japan under the Trans-Pacific Partnership (TPP), among other things. It also puts the focus on new U.S. sanctions on Russia for its intervention in Ukraine; a new round of negotiations in Geneva for the plurilateral Trade in Services Agreement (TISA), as well the release by the U.S. government of its annual Special 301 report on intellectual property rights practices around the world.

On Thursday (May 1), U.S. Trade Representative Michael Froman will testify at the Senate Finance Committee on the president's trade agenda, in what could easily be a repeat performance of his April 3 testimony before the House Ways and Means Committee. At that hearing, he was pressed on number of outstanding TPP issues, including how Vietnam can be expected to live up to the deal's labor obligations and whether Japan should be excluded from TIPP for its efforts to protect its sensitive agriculture products from more import competition.

The new U.S. sanctions announced today (April 28) include export control license changes, as well as new visa bans and asset freezes for persons and companies considered to be in Russian President Vladimir Putin's inner circle.

The Bureau of Industry and Security (BIS) as well as the State Department's Directorate of Defense Trade Controls announced that they will revoke existing licenses and deny pending license applications for export and re-export of high-technology items that contribute to Russia's military capabilities.

The announcements do not specify what is the value of these licenses or what items they cover, but one informed source said that they are likely concentrated on aerospace items because Russia has been expanding its civilian aircraft industry with the help of U.S. companies. But the items that these companies ship under an export license could be very easily transformed from use in civilian aircraft to a military application, the source said. He also speculated that the sanctions could also affect licenses for heavy vehicles or machine tools.

The announcements make clear that the new sanctions apply only to a subset of pending license applications that would expand Russia's military capabilities, noting that all other pending applications will be evaluated on a case-by-case basis. Therefore, the sanctions announcement is “more of a signal than a biting sanction” on Russia, said Paul Freedenberg, CEO of MK Trade Compliance Group and former undersecretary of BIS. But he noted that this decision certainly reverses the recent trend of cooperative projects between U.S. and Russian companies.

BIS also added 13 companies and persons located in Russia to its Entity List, which in this case means license applications for exports to those entities face a presumption of denial, according to the announcement. This is because they are involved or pose a significant risk of becoming involved in activities that run counter to national security and foreign policy interests of the United States, according to the BIS announcement.

Prior to these additions, the Entity List already contained more than 100 Russian entities for which licenses subject to Export Administration Regulations face a presumption of denial.

The second prong of the sanctions announced today is the Treasury Department's imposition of a visa ban and an asset freeze on seven Russian government officials, including two members of Putin’s inner circle. Treasury also announced that it will impose an asset freeze on 17 companies linked to Putin’s inner circle. These sanctions also generally prohibit U.S. companies and individuals from doing business with these 17 firms.

The U.S. sanctions announcement was made in conjunction with the European Union, which announced on April 27 that it would impose a travel ban and an asset freeze for 15 more Russian persons.

In Geneva, negotiators for the TISA are meeting April 28-May 2 for a five-day round chaired by Australia. The main focus of this round is to push ahead the work on eight proposals for sectoral regulatory disciplines by trying to transform them to bracketed negotiating texts. The schedule foresees work each day on two of the eight regulatory discipline proposals under consideration this week.

The eight sectoral proposals cover financial services; telecommunication and e-commerce; maritime transport; domestic regulation and transparency; road transport; competitive delivery services; and energy services. One day is devoted to a horizontal discussion on initial market access offers that were discussed for a first time at the last TISA round in February, according to a Geneva source.

Also this week, USTR is scheduled to release its Special 301 reporton foreign intellectual property rights practices, most likely by mid-week. The report was foreshadowed somewhat during the president's visit to the Philippines, when USTR announced it removed the Philippines from the Special 301 watch list in light of Manila's commitment to strong intellectual property rights protection and the improvements it has made so far.

In a related development, Froman on May 2 will meet with Cary Sherman, chairman and CEO of the Recording Industry Association of American, to discuss trade and intellectual property issues.

Also in the Philippines, the two sides announced an agreement in principle under which the U.S. will back Manila's efforts to extend an existing exemption in the World Trade Organization for its rice quota from the obligation to transform it into a tariff-rate quota in exchange for getting a Philippine government commitment regarding trade facilitation.

In Malaysia, Prime Minister Najib Razak said in an April 27 joint press conference with Obama that he and the president had discussed the sensitivities and challenges his country faces in the TPP. Najib said President Obama “fully understands our domestic sensitivities, and we will sit down and try to iron this out with the intention of trying to work out a deal in the near future." Anti-TPP demonstrations took place in Malaysia during Obama's visit.

Najib last year identified six key areas that are priorities for the United States as those in which Malaysia believes the TPP could impinge on its sovereign right to regulate. They were intellectual property protection, state-owned enterprises, investor-state dispute settlement, government procurement, labor and environment. He said at that time these are areas of "great concern" because their inclusion in TPP means it is broader in scope than the previous free trade agreements Malaysia has negotiated with other countries.

Froman, who accompanied Obama on his Asia trip, will be back in Washington by mid-week. He is scheduled to meet on Wednesday (April 30) with Carlo Calenda, Italy's vice minister of economic development on the Transatlantic Trade and Investment Partnership (TTIP) negotiations.

He is also slated to meet on May 1 with a BusinessEurope delegation to discuss TTIP. In a related development, European Commission President Jose Manuel Barroso will speak to the U.S. Chamber of Commerce on April 30 about the importance of the TTIP. On the same day, Deputy USTR for Small Business Christina Sevilla is slated to speak about TTIP and small businesses at the Embassy of Latvia.

Also this week, USTR is pressing the issue of worker rights and worker safety with Bangladesh, where USTR today is leading the inaugural U.S.-Bangladesh Trade and Investment Cooperation Forum Agreement.

USTR has pressed Bangladesh to do better on labor rights and worker safety, but last week opened itself up for criticism from AFL-CIO President Richard Trumka over a separate labor dispute involving Guatemala.

Trumka blasted USTR's decision to extend by four months a U.S.-Guatemala labor enforcement plan that is aimed at resolving a case the U.S. brought against Guatemala for its alleged failure to comply with the labor obligations of the Central American Free Trade Agreement (CAFTA).

The AFL-CIO president said USTR's decision not to restart dispute settlement proceedings over Guatemala's labor rights violations bodes ill for Froman's claims that he is fighting to protect labor rights, including in the TPP.

USTR announced the four-month extension on April 25, framing it as a decision to “keep in place the labor case against Guatemala.” Froman said his decision means the case “will not be terminated and will remain suspended for an additional four months as the United States seeks further progress by Guatemala on its labor obligations under the [CAFTA].”