Dear Members and Friends:
Hope that your holidays were enjoyable and that you are staying safe. As we get into the new year, we have a number of important items to report.
USMCA Update
A few issue areas are in the works affecting all three countries. First, on January 4, the US prevailed in the first Dispute Settlement panel proceeding ever brought under the USMCA. In the proceeding, a panel was asked “to determine whether Canada’s current practice of reserving 85 to 100% of 14 separate dairy tariff rate quotas (“TRQs”) for ‘processors and further processors’ is inconsistent with its obligations under the Canada-United States-Mexico Agreement/United States-Mexico-Canada Agreement.” The proceedings go back to December 9, 2020, when the US requested consultations with Canada on the matter. Articles 31.2 and 31.4 of the Treaty, which are part of the Chapter on Dispute Settlement, were the ones called upon. The panel agreed with the US position in the case. Although the panel’s report, “Canada – Dairy TRQ Allocation Measures (CDA-USA-2021-31-010),” is a lengthy one to go through, the panel’s decision is the first of its kind under the USMCA’s “state-to-state” dispute settlement mechanism and may be the template for the settlement of future disagreements.
On the auto-related sections of the USMCA, which is also involving a dispute settlement panel, Mexico has joined Canada in questioning how the US has chosen to interpret the automotive rules of origin policy that forms part of the agreement. Mexico requested the establishment of a panel on January 6 and Canada followed on January 13. Canada believes that the US interpretation of the rules – especially the calculation of regional value content (RVC) – could make it harder for Canadian vehicles and main components such as engines, transmissions, and steering wheels to qualify as duty-free. Mexico, in part, feels the rules as interpreted by the US might hinder the development of electric vehicles and components. Both parties agreed to approach the US on a consolation on this past August 20. A panel ruling is expected this summer.
On the labor provisions of the USMCA, the US has already filed two complaints under the “Rapid Response Mechanism.” Both are in the process of being resolved. The Congressional Research Service just released an update to their earlier piece on “USMCA: Labor Provisions” and earlier this month also did an update to the “U.S.-Mexico-Canada (USMCA) Trade Agreement.”
Section 232 Tariffs
On December 28, 2021, two proclamations were issued by the White House – “Adjusting Imports of Steel into the United States” and “Adjusting Imports of Aluminum into the United States.” These are the result of an agreement on October 30, 2021, between the US and the EU on the Section 232 tariffs that were implemented during the Trump administration. Under the agreement, the United States will replace the current Section 232 duties with tariff-rate quotas (TRQs) for covered EU products effective January 1, 2022. The EU will suspend related retaliatory tariffs on US products, and the United States and EU have agreed to suspend their World Trade Organization (WTO) disputes against each other regarding these Section 232 tariffs. The details can be found at “Announcement of Actions on EU Imports Under Section 232: October 31, 2021.” The Department of Commerce will issue a notice in the Federal Register no later than February 10 seeking comments from interested parties on the Section 232 steel and aluminum exclusion processes.
Caribbean Basin Initiative
Although sometimes hidden in all of the other trade news of the world, the Caribbean Basin Initiative (CBI) was initially launched in 1983 with the passage of Caribbean Basin Economic Recovery Act, substantially expanded in 2000 with the Caribbean Basin Trade Partnership Act and later with the Trade Act of 2002. As of last year, the CBI provides 17 countries and dependent territories with duty-free access to the US market for most goods. In 2020, CBI beneficiary countries supplied $5.1 billion of US imports, ranking 49th among US import suppliers. The detailed annual report of USTR for 2021 is “Fourteenth Report to Congress on the Operation of the Caribbean Basin Economic Recovery Act.”
Looking Forward
The Economist Intelligence Unit has released a report, “North America in 2022: key trends and forecasts,” that provides glimpses on a number of issue areas including the mid-term elections, the economic outlook, monetary policy, foreign policy, and energy.
Fitch Solutions also provides a look at the economic side with “Key Global Macroeconomic Themes For 2022.” Ten different themes are covered, including economic normalization and COVID-19, economic growth, tourism, inflation, monetary policy, polarization, and regional and global political tensions. Fitch ends with the need to look at four key risk areas: credit stress from the property sector in China, price pressures remaining strong, new COVID-19 variants, and geopolitical missteps between Russia and Ukraine.
John Murphy, Senior Vice President for International Policy at the US Chamber of Commerce, provided a presentation (here) from a webinar last week on “Global Trade Outlook 2022” that covered a broad area of issues including supply chain woes. Very good overview on the outlook especially for trade and geopolitics.
Thanks to our partners at Manchester Trade, we have a report from IHS Markit, “Global Trade Outlook 2022.” It indicates that the “COVID-19 pandemic is the most prominent driver of the current global economic situation. As a pandemic cannot be fully predicted, it leads to significant uncertainty.” Despite the negative impact COVID has had on economic activity, real global trade increased by 12.6% in 2021 and will increase 4.3% in 2022. IHS also forecasts that, after a 3.4% decline in 2020, world real GDP will increase 5.6% in 2021 and 4.3% in 2022. On qualitative factors affecting trade going forward, they indicated, “Over several decades, the global trade system is likely to develop into a system of several large RIAs or mega-regional trade agreements (e.g., European, Pan-American & Asian) with a significant role in the global trading system and potentially large tensions between them. The launching of RCEP (Regional Comprehensive Economic Partnership) can be considered an essential step in this process.”
Finally, on US-Mexico Trade, as of November, Mexico was still our leading trading partner for 2021 to date with Canada and China very close. The three accounted for 43.3% of all trade with the US. Mexico’s total trade with the US was $58.71 billion in November.
Upcoming Webinars
Our Mid-America Chapter has done seven webinars thus far on subjects involving Mexico and trade. We have several more in the works, including Tourism; a USMCA Update; a Legal, Tax, Fiscal and Supply Chain Update; Industrial Clusters; Electronics; Appliances; and Agriculture. We will keep you posted.