The Biden Administration’s Relations with Our Major Friends and Adversaries – Part II

Members and Friends:

Hope you are well and staying safe.

This is Part II on our topic. Part I had to do exclusively with our relations with Mexico. This one will cover relations with Canada and China as well as other trade-related subjects.

As always, all of the linked documents below can be found on our website at www.usmcocma.org/resources.

U.S. Relations with Canada

Both the Canadian Government Affairs Institute (CGAI) and the Canada-U.S. Business Association (CUSBA) had webinars in the past two weeks on the state of Canadian trade, COVID-19, and economic forecasts for both countries. Both webinars spent a lot of time on the economy, with one speaker from Export Development Canada at the CGAI webinar presenting data showing that the Canadian economy did not do as badly as was feared and that government stimuli in both countries helped to keep things from getting worse. The economic presentations at CUSBA are attached. Speakers at the CGAI webinar felt that energy (Keystone XL pipeline), “Buy America,” and 232 tariffs would be key issue areas. Some suggested turning the “Buy America” into “Buy North America.”

On February 23, President Biden and Prime Minister Trudeau held a virtual meeting to discuss the relationship between the two countries. The White House issued a statement on the “Roadmap for a Renewed U.S.-Canada Partnership.” There were a number of detailed sections on the following topics: COVID-19; Building Back Better; Accelerating Climate Ambitions; Advancing Diversity and Inclusion; Bolstering Security and Defense; and Building Global Alliances. Neither leader mentioned some of the thornier issues that have come up since Biden took office, such as the president's decision to halt the construction of the Keystone XL pipeline and Biden’s new “Buy America” Executive Order. The U.S. still needs to name a new Ambassador to Canada.

U.S.-China Relations

In President Biden’s first foreign policy speech, on February 4, he said “we’ll also take on directly the challenges posed by our prosperity, security and democratic values by our most serious competitor, China. We’ll confront China’s economic abuses, counter its aggressive course of action to push back on China’s attack on human rights, intellectual property and global governance.”  With that as an opening salvo, it will be interesting to see what’s next.

Several documents have a perspective on policy moving forward. UNCTAD’s Investment Trends Monitor of January 24 shows that, for 2020, China saw a slight increase in FDI of 4%. The only other country seeing an increase was India with 13%. The U.S. dropped by 49% mainly due to sharp reductions in greenfield investments and cross-border M&As. Globally, FDI were down 42%.

Brookings and Yale released a report in November, “The Future of U.S. Policy Toward China: Recommendations for the Biden Administration,” a number of independent articles by experts in the field. Although there was not unanimous agreement by the experts, the aim of all was to move the U.S.-China relationship forward in a manner that strengthens America’s security, prosperity, and values.  As the President said in his foreign policy address, China should be seen as “a strategic competitor, not an enemy.”

Allianz Research issued a report on January 18, “The World is Moving East, Fast,” indicating that the “World Center of Gravity” has been moving eastward toward Asia since 2002 and, at the rate it is going, China could overtake the U.S. economy by 2030. Part of the recent trend is because China came out of COVID-19 first. Other reasons are the number of free-trade and investment agreements, including the Regional Comprehensive Economic Partnership (RCEP) signed in November and the recent EU-China Comprehensive Agreement on Investment, agreed in principle in December. The U.S. was not involved or included in either, and neither are we in the CPTPP which includes seven countries in Asia. It’s a very comprehensive report.

Our colleagues at the Albright Stonebridge Group have provided us with detailed reports on trade and economics. Their most recent report is “ASG Update on the Chinese Economy.” During this month’s annual National People’s Congress, the Chinese government will release its much anticipated 14th Five Year Plan (FYP) and a new, longer-term industrial development strategy called “Vision 2035,” laying out China’s economic growth and industrial policy objectives for the next five to fifteen years.

USTR

Katherine Tai completed her nomination hearings for USTR before the Senate Finance Committee on February 25. In her opening statement she indicated that she would work to develop and execute a “strategic and coherent plan for holding China accountable” to its commitments, including the Phase One Agreement, and “competing with its state-directed economic model,” while still adhering to American values and recognizing the need to work with China “to address certain global challenges.” She also said that tariffs were “a legitimate tool” in the U.S. trade policy toolbox and seemed to confirm expectations that the Biden administration would not be lifting tariffs imposed by the Trump administration any time soon.

Brexit

An update on Brexit by Thomson Reuters entitled “Brexit’s Impact on Global Trade and How Technology Can Help Multinationals Succeed” was just released. As was reported, under the UK-EU agreement, originating goods will benefit from the liberalized market access so long as they satisfy the new rules of origin requirements. If they are not originating in the UK or EU, tariffs would still be payable. Companies must now calculate the origin of their goods if they trade between the EU and UK, which is a new compliance burden for traders in the region. The number of annual customs declarations is estimated to increase by 215 million — from 55 million per year to 270 million! Trade compliance managers in impacted companies will need to monitor and respond to changes, ensure compliance with new regulations, cope with ongoing uncertainty, and map contingency plans based on the information they have at hand. Based on survey, only 40% of respondents said they have a formal process for addressing the new UK Global Tariff and new UK FTAs. The report goes on to recommend a number of available tools and processes to assist companies in developing an automated global trade management (GTM) system.

Impact of Economic and COVID Factors on Freight

Freightwaves has provided a look at what the forecast for freight might be in 2021 in their recent report. In 2020, the traditional ratio or split between services and goods experienced a sharp mix shift toward goods (and away from services) due to the factors we mentioned above. The traditional 67%/33% split of services/goods blew out to closer to 60/40, with goods accounting for 40 cents of every dollar of consumer spending. Freightwaves expects this split to return closer to its long-run average in the second half of 2021, which will weigh on goods spending (and therefore truckload load volumes and demand).  The report explains the reasons for current volatility in capacity and freight cost affecting many areas especially on the West Coast.

Customs and Border Protection have issued an Addendum to USMCA Implementing Instructions on January 21 covering “Phase 2 Implementation – Six Months After Entry Into Force and Onwards (Jan. 1, 2021).”

President Biden has issued several executive orders having to do with Buy America.  First, on January 25, the White House issued a statement indicating “President Biden to Sign Executive Order Strengthening Buy American Provisions, Ensuring Future of America is Made in America by All of America’s Workers.” What followed was Executive Order 14005, “Ensuring the Future Is Made in All of America by All of America’s Workers” with all of the details. In the process, it also revoked the “Buy American and Hire American” Executive Order (EO 13788), which President Trump signed on April 18, 2017.  The document is also known as the “Made in America” Executive Order. We will have to see how the implementation changes things – especially which L1 and H1B visas are being given to individuals whose skills are required by American companies.

The Biden Administration’s Relations with Our Major Friends and Adversaries – Part I

Members and Friends:

Hope you are well and planning your COVID-19 vaccine appointments.

As always, all of the linked documents below can be found on our website at www.usmcocma.org/resources.

While the President’s nominees for Cabinet and other senior positions wind their way through the Congressional approval process, conjecture continues on the direction(s) trade policy will take and the potential impact on friends and adversaries. We have included some initial reports in our previous updates. However, much additional information has come forward in the past few weeks and we will cover it here.

The overall update will be divided into two parts, the first part on Mexico below and a following one next week on other allies and adversaries.

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First, on the U.S. Relations with Mexico front, the Wilson Center’s Mexico Institute has been a reliable source of timely and detailed reports. They have just published a series under the title “Re-Building a Complex Partnership: The Outlook for U.S.-Mexico Relations under the Biden Administration.” Below is our commentary on three of the nine policy pieces. In general, the goal of the series was to “to draw together the insights of a number of leading experts on the bilateral relationship to both analyze the current moment in the bilateral relationship and to identify potential paths forward.”

In the first piece, “From Trump to Biden: Mexican Public Opinion and AMLO’s Rhetoric,” the conversation revolves around three charts showing the changing opinion of the Mexican public to U.S. Presidents, the U.S.-Mexico relationship, and the United States in general from 2001 to 2020.  Also part of the discussion is the relationship of AMLO to President Trump and, now, President Biden.  As far as the Mexican public is concerned, the opinions have been generally positive – except for the period when Trump was President. Additionally, “From 2019 to 2020, Mexican public opinion about the U.S.-Mexico relationship changed significantly, in a positive direction, and the polls also showed positive changes in Mexicans' opinions about the United States during that time." Many of the opinions, “approve” or “disapprove,” had a lot to do with who was President of Mexico and the U.S. at the time – and how they got along (or didn’t).

In the second piece, “A Reset in U.S.-Mexico Relations Also Requires Re-Engagement on Global and Regional Issues,” the feeling is that the Biden Administration will quickly seek to revert the negative effects of President Trump’s past four years and will also likely attempt to reset key bilateral relations with allies and partners.  Although there are many opportunities available, a forward-leaning and deeper and wider U.S.-Mexico regional and global dialogue may be unlikely in the coming months and years as a Biden-López Obrador reboot will not be easy, notwithstanding the best intentions in Washington and the deliberate efforts of some in the Mexican government. The piece provides several policy recommendations.

The third piece, “Fulfilling North America's Promise,” contains policy recommendations allowing the leaders of all three countries to take advantage of President Biden’s arrival to rebuild confidence and establish cooperative work agendas on key economic and security issues facing North America. Foremost, they should agree to convene a North America Leaders’ Summit in the year ahead to develop an agenda to discuss and manage mutual issues such as trade, investment, jobs, competitiveness, homeland security, the environment, migration, illegal drugs, pandemics, and terrorism. According to the report, none of the three countries can ignore the effect of geographic location, but all can benefit by giving more priority attention to continental relationships.

On February 9 the Mexico Institute discussed via webinar a recent report from Signos Vitales entitled “Mexico and United States: From Subordination to Expectation.” In the Introduction the authors state, “Despite the grievousness with which this year treated the entire planet´s population, the arrival of Joe Biden to the White House, after a tough and close electoral contest, envisions a closing and a beginning of the year that encourages maintaining the hopes for progress in solving shared problems.” Although the report covers aspects of U.S. “meddling” in Mexican politics, immigration policy, and security policy, it goes on to cover issue areas where attention in needed – energy, climate change, trade, and women and gender equality.

The week before last the McAllen Economic Development Corporation and Interlink Trade Services did a webinar on “2021 Cross-Border Trade: Beyond COVID-19 and the Trump Administration,” which covered a wide range of topics including a review of USMCA affecting the auto industry; COVID-19 and the effect of essential and non-essential industries; Trump’s trade policies; and changes to expect under the Biden Administration.

The Congressional Research Service (CRS) released its report, “Mexico: Background and U.S. Relations,” on January 7. It updates previous reports done on an ongoing basis and provides an outlook for relations going forward with the Biden Administration.

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Reviewing all of the webinars and presented materials, key issue areas going forward with Mexico would be climate change, migration, energy, border issues, the environment, labor reform legislation and enforcement, water rights, and human rights.

Trade Outlook and Agendas – US, Canada, UK, China, Mexico

Members and Friends:

First, Happy New Year. We hope to be able to move forward as a country and individually both healthwise and economically this year. In the meantime we will continue to bring you news on the trade and investment front – with Mexico, yes, but also with other countries that we have been covering all of 2020.

On the US trade agenda front, Inside U.S. Trade just released a listing of key dates and events for the new year by month. It is very thorough and covers many activities that are required by law. One item of importance to be submitted in early March would be the report to Congress by the Biden Administration and USTR on its “2021 Trade Policy Agenda.” Also due for renewal consideration on June 30 would be Trade Promotion Authority. The “2021 National Trade Estimate Report on Foreign Trade Barriers” may be released on March 31.

Looking at the Biden Administration’s agenda for working on the key serious issues facing the country, it is doubtful that there will be any early activity on new trade agreements such as one between the US and the UK, or even rejoining the CPTPP – at least for a while. USTR designate Katherine Tai is still to be confirmed by Congress.

Looking at a global trade agenda, John Murphy of the US Chamber of Commerce brought out a list of upcoming events and issues including summits in a number of regions for this year in a webinar last week (here).

On relations with Canada, our good colleague Colin Robertson has just released a report on “What Canadians Need to Know About the Biden Inauguration” including how Canada has to position itself with our new government. A candidate for US Ambassador to Canada still needs to be announced and confirmed. This likely will not be done until this summer but, in the meantime, several issues are “on the plate” including the Keystone XL pipeline – and President Biden already has rescinded the permit for that as one of his first executive orders. Of note is that President Biden and Premier Trudeau spoke last Friday for 30 minutes, with reports that the tone was very positive.

The last item in our last update was the Brexit Agreement – which happened at the very last moment before the year closed. With a week to go until the end of the Brexit transition period, the UK and EU announced the UK-EU Trade and Cooperation Agreement (TCA) on December 24. The deal will cover the future UK-EU relationship. Alongside the TCA, the UK and EU also signed off on the Nuclear Cooperation Agreement (NCA) and the Security of Classified Information Agreement (SCIA). A summary of the agreements is available, while those who want all the details can read the 1,449-page full document.

Our friends at the Albright Stonebridge Group (ASG) provide their thoughts on the the post-Brexit future of the UK going forward once all of the EU Ambassadors ratify the agreement, which could take several months. Although chaos has been avoided, a lot more work has to be done by the Johnson government in reasserting itself on the international stage to fully deliver on the promise of “Global Britain.” As mentioned above, negotiations between the US and the UK on a trade agreement were not completed. Some sections related to SMEs, investment, and digital services were close to completion, but substantial differences remain on pharmaceutical regulation, textiles, goods standards, and intellectual property. Also, agriculture, including food safety and animal welfare regulations, is expected to be a highly contentious issue.

Seven years in the making, ASG also reports on the new EU-China Comprehensive Agreement on Investment (CAI), which was signed on December 30. The proposed EU-China agreement is an opening salvo in discussions between the incoming Biden administration and its European allies about how to approach China. In addition to commitments to discipline the poor behavior of Chinese state-owned enterprises, the EU secured Chinese pledges on environmental policies, climate change initiatives, and labor standards. Several EU members, however, have lamented that these commitments are not legally binding and noted the continued repression of pro-democracy activists in Hong Kong.

The European Union is poised to make significant economic gains under the CAI. If ratified, the agreement would provide European investors greater market access to 1.4 billion Chinese consumers and a more level playing field in China. China has committed to opening to foreign investment in automotive, financial, health, cloud, computer, maritime transport, air transport, business, environmental, and construction services under the agreement. It also seeks to make investment fairer by disciplining the behavior of Chinese state-owned enterprises (SOEs) and imposing transparency obligations on subsidies in the services sectors, filling an important gap in the World Trade Organization (WTO) rulebook. The agreement also clearly outlines rules against the forced transfer of technology and for equal access to standard setting.

On the Biden Administration policy toward China, the consensus appears to be that the Administration should take a gradual approach to restoring dialogue with Beijing, both to give allies and partners confidence that Washington prioritizes restoration of bilateral relations with them and to make clear to Beijing that the United States will be focused foremost in the US-China relationship on advancing clear objectives, not on laundering an appearance of “back to normal” for a relationship that is the opposite at the current moment. Also, following on the above, the United States would have much greater leverage in addressing China by “working with our allies” rather than acting unilaterally as the Trump administration has so often done. In the meantime, existing tariffs by both sides will stay where they are. It’s still very early – let’s see what happens!

Back to our hemisphere, we have a number of reports. This past week Fitch Solutions presented a Latin America Macroeconomic Update with key themes for 2021. Included was a look at several economies including Argentina, Brazil, Colombia, Mexico, Chile, and Peru. Mexico is seen to lag the other emerging market economies with midterm elections coming up in June.

We also have our quarterly Mexico Investment, Economy and Politics Brief for December and also Fitch’s Global Monthly Outlook showing a “strong, but uneven recovery In 2021.”

Following our last, highly successful webinar on the Mexican Auto Industry, we are planning three over the next quarter on Technology, the Aerospace industry, and the Medical Device industry. Announcements will be coming out shortly. Please plan to join us.

Finally, all of the documents referred to in our frequent updates can be found on our website at www.usmcocma.org/resources.

Stay well and safe.

Mexico Economic, Trade, and Labor Update – Plus China and “Brexit Deal”!

Members and Friends:

Lots of updates on a number of matters involving trade.

Biden Administration Nominations

President-elect Biden has made several nominations that will affect trade policy in the new Administration. These include Katherine Tai as United States Trade Representative (USTR) and Ambassador Susan Rice as Director of the Domestic Policy Council.

Currently, Katherine Tai serves as the chief lawyer on trade to the Chairman and Democratic Members of the Committee on Ways and Means on matters of international trade as Chief Trade Counsel. In this role, she has secured key victories for workers in US trade policy and has been praised by lawmakers and lawyers for her work. Prior to the Committee, Tai served in the USTR’s Office of the General Counsel, first as Associate General Counsel from 2007 to 2011 and then as Chief Counsel for China Trade Enforcement with responsibility for the development and litigation of US disputes against China at the World Trade Organization (WTO). She would replace outgoing USTR Bob Lighthizer, who led the team negotiating the USMCA, and would be the first Asian American and first woman of color to serve as US Trade Representative.

Ambassador Susan Rice served as National Security Advisor from 2013-2017, where she directed and implemented the Obama-Biden Administration’s national security policy in all areas, including global health, climate policy, international trade, development and economic issues, relationships with allies, competition and cooperation with China and Russia, and managing US foreign relations with all regions of the world. Previously, Rice served President Bill Clinton as US Assistant Secretary of State for African Affairs, Special Assistant to the President and Senior Director for African Affairs, and Director for International Organizations and Peacekeeping at the National Security Council from 1993-2001. The selection for Secretary of Commerce is yet to be announced.

US-Mexico Trade

On the US-Mexico trade side, China replaced Mexico as our number one trading partner in October. China’s total trade with the US rose 25% in October compared to the same month a year ago, with imports from China increasing 14% and US exports to China increasing 51%. Mexico fell to No. 2, as its total trade with the US rose a moderate 0.57% to $53.66 billion in October compared to the same period in 2019. Canada was third, with $48 billion in total trade with the US in October.

US imports from Mexico rose 7% during October compared to the same period in 2019. US exports to Mexico declined almost 10% during October. In the auto sector, US imports of passenger vehicles from Mexico fell 27% during October to $23.34 billion. Imports of commercial vehicles fell 16% to $18 billion, and imports of auto parts declined 16% to $18 billion.

The latest economic reports on Mexico from Monarch Global Strategies and Business Development Partners begin with a view of what relations between our two countries will be like with the election of Joe Biden and go on to discuss the energy sectors, the new budget – and politics. Business Development Partners does report a number of new investments in a variety of sectors. However, COVID remains a major issue going forward. Five major states including Mexico City are registering an upward trend in the number of cases and are perilously close to returning to the red or highest level on the national epidemiological traffic light system. A return to red would signify closure of all but essential businesses and other strict restrictions on movement and economic activity.

Also on the Mexican economic front, the government just approved a general minimum wage increase of 15% on December 16, an amount that was proposed by President Lopez Obrador. The increase will take effect on January 1, 2021, and consists of two factors:

1. The annual minimum wage increase, which is equivalent to 6%, and

2. The cost-of-living adjustment (known as the “MIR” by its initials in Spanish), which is equivalent to the fixed amount of Mex$15.75 for the Northern Border Zone and Mex$10.46 for the rest of Mexico.

The foregoing results in a real increase to the minimum wage from Mex$185.56 to Mex$213.39 for the Northern Border Zone, and from Mex$123.22 to Mex$141.70 for the rest of Mexico. Despite the new level, President Lopez Obrador said “workers are going to get an increase that is still, on the world scale, shameful.”

Mexico Labor Reform

The implementation of the USMCA created an independent body that will monitor the labor portions of the agreement. The purpose of the very detailed Interim Report of the Independent Mexico Labor Expert Board, released last week, was to assess the efforts of Mexico to implement Mexico’s labor reform and the manner and extent to which labor laws are generally enforced in Mexico. It would also seek to determine whether Mexico is in compliance with its labor obligations. The results were that

“Mexico has made significant progress in the implementation of the May 1, 2019, labor law reform, especially taking into account the impact of the Covid-19 pandemic. The efforts of the López Obrador administration, and especially the leadership of the Secretariat of Labor and Social Welfare and the Federal Center for Conciliation and Contract Registration, deserve recognition. At the same time, it must be acknowledged that many of the changes promised to improve the lives of workers, in terms of union democracy, freedom of association and collective bargaining, remain to be implemented. Most unionized workers are not yet able to democratically elect their leaders or ratify their collective bargaining agreements.”

Global Macroeconomic Activity

We have added another report on global macroeconomic activity, this one from Fitch Solutions. The report provides the latest information on COVID-19 in Europe and the US and indicates that the global growth momentum following the deep drop in April-June may be difficult to sustain in the fourth quarter.

China Policy

Our friends, the Albright Stonebridge Group, released an analysis on “What to Expect from a Biden Administration on China Policy.” The key takeaways from the analysis were:

• Competition and tension with China will remain heightened in 2021, but we expect both sides will work to manage the current level of toxicity in the relationship

• The Biden administration will view Beijing as a rival, competitor, and in some contexts an adversary, but will likely seek to engage Beijing on issues including future pandemic control and preparedness, global economic revitalization, nonproliferation, and climate change

• As President, Biden’s approach to China will be more predictable, transparent, and coordinated than President Trump’s but the change will not lead to a wholesale reset.

Also on China, on November 15, fifteen countries — members of the Association of Southeast Asian Nations (ASEAN) and five regional partners — signed the Regional Comprehensive Economic Partnership (RCEP), possibly the largest free trade agreement in history. RCEP will connect about 30% of the world’s people and output and, in the right political context, will generate significant gains. RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030. India and the United States were to be members of RCEP and the CPTPP, respectively, but withdrew under the Modi and Trump governments. Details on the agreement and the impacts it will have on trade, especially in the region, are provided by Baker McKenzie and the Peterson Institute.

Brexit Deal

Lastly, the everlasting Brexit Bunny can stop running!  A historic Brexit deal on the UK’s future trading and security relationship with the European Union was struck on Christmas Eve, a week before the end of the transition period. The announcement followed a final call between Boris Johnson in Downing Street and the European Commission president, Ursula von der Leyen, in her headquarters in Brussels – at least the fifth such telephone conversation over the last 24 hours. The trade agreement – running to 2,000 pages – is unprecedented in scope, containing provisions on subjects varying from civil nuclear cooperation and energy interconnections to fishing and aviation.

The last stumbling block was fisheries.  In the final days, it had been future EU access and quotas in British fishing waters, an issue of small economic impact but high political salience for both sides, that was the difference between a deal and a breakdown in talks. The EU had offered a six-year transition period for phasing in a 25% reduction in the catch by value taken by European fleets in British waters, with access guaranteed to a 6- to 12-nautical-mile zone from the British coastline. The UK Downing had tabled a counter-proposal of a three-year transition period with a 60% reduction – and no access to the nautical zone. The compromise involves a transition period of five and a half years to phase in the changes, according to sources, with the UK accepting a 25% repatriation of quotas.

Following the announcement of a deal, the European Commission sent the draft treaty to the member states. Should the 27 capitals be content with the deal, ministers on the council of the EU will agree on provisional application of the agreement on January 1, 2021.

On a sad note, Martha Barcena, the Mexican Ambassador to the US – and a very good friend of the Chamber – announced her resignation on December 14. She will be replaced within the next few months.

We hope you are well and staying safe. We wish you a happy holiday season wherever you are!

Ralph Biedermann
Executive Director
U.S.-Mexico Chamber of Commerce, Mid-America Chapter

(224) 578-5310 Mobile
ralph.b@usmcoc.org
www.usmcocma.org

The Voters Have Spoken – Now What’s Next on Trade Policy?

Dear Members and Friends:

The elections are over, although challenges and final counts are continuing. In our last update we provided a glimpse of how supply chain might change based on the proposals both President Trump and now President-Elect Biden put forth during the campaign. The proposal of the Biden campaign on supply chain with more detail can be seen here. We will keep you abreast of new information once the Biden Administration forms its Cabinet and key players are identified.

Just before the election, Colin Robertson wrote an excellent piece, “Biden or More Trump: What Canadians Need to Know about the 2020 U.S. Election,” which gives some insight on factors that would be important to Canadians depending on the outcome. However, Colin indicates that “Life for Canada would be easier with a Joe Biden administration.”

Fitch’s “Global Macroeconomic Monthly Update” for October shows, in charts, that the sharp economic growth of Quarter 3 may be hard to sustain going forward, particularly in light of the dramatic increase in COVID-19 cases in most of the world.

On the Mexico side, attached is Tom Johnston’s monthly “Mexico Investment, Economy and Politics Brief.” And finally, attached here is a report on the growing trade and investment relationship between Mexico and Canada done by COMCE Sonora (Mexican Business Council for Foreign Trade, Investment and Technology).

On Brexit, we are following several activities. A summit of EU leaders on November 19 is now viewed in Brussels as the final deadline for a draft Brexit deal, with negotiations on Britain’s future trade and security relationship with the bloc set to go to the wire. Negotiators working in London had hoped to be able to pass on a deal to MEPs for scrutiny by November 18 to allow time for parliamentary ratification, but the talks remain difficult, according to sources on both sides.

It was hoped that the parliament would vote on the deal on December 16. Sources in the European parliament said an extraordinary sitting of the chamber may need to be arranged for December 28 – three days before the end of the transition period when the UK leaves the single market and customs union. Key issues remaining are coming up with a “level playing field” and fishing rights.

President Elect Joe Biden has said ““We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit. Any trade deal between the U.S. and U.K. must be contingent upon respect for the Agreement and preventing the return of a hard border. Period.”

On the webinar front, our Chapter is working on three new sessions for the next few months: an update on the Mexico automotive industry and its supply chain in the COVID and USMCA environment; a look at the growth of e-commerce and technology utilization in Mexico; and a view of several key manufacturing centers in Mexico on trade and investment in their geographies.

Keep in touch. Check us out at www.usmcocma.org.

Stay safe. And, thanks for your continued support.

Ralph Biedermann
Executive Director
U.S.-Mexico Chamber of Commerce, Mid-America Chapter

(224) 578-5310 Mobile
ralph.b@usmcoc.org
www.usmcocma.org

Trump and Biden – Views on Supply Chain, Macroeconomics, Globalization

With only a week left until Election Day, we hope that you all either have voted or will vote!

We are attaching two reports by Moody’s Analytics and Supply Chain Dive on the position of both candidates on supply chain and the possible macroeconomic consequences of the economic proposals they have put forth.

Also on the supply chain side, here is a report by McKinsey on the rebalancing act facing many companies in goods-producing value chains as they seek to get a handle on risk (a la COVID-19).  The very detailed report concludes in part:

“Today, much of the discussion in advanced economies about resilience revolves around the idea of reverting to domestic production as a 'flight to safety.' The geographic footprint of production and supply chains does need to be reevaluated periodically as the environment changes, and heavy dependence on one geography can be a vulnerability. But companies and countries have a wide range of options at their disposal. Increasing local production is only one of them—and it is not a guarantee of robustness in and of itself, nor is it always feasible. The toolbox is much bigger than the current debate would seem to indicate.”

On globalization, our Chamber recently did a webinar on “The North American Trading Bloc in a World of Globalization” with speakers on the U.S. (Ambassador Rufus Yerxa), Mexico (Valeria Moy), Canada (Colin Robertson), and the North American trading bloc (Eric Miller).  Their excellent comments can be seen at https://youtu.be/o7YfkY17yLo. The slides from the event set the scene for the overall topic.

We will be having two webinars coming up on the auto industry and technology in Mexico following the implementation of the USMCA. Then, in the beginning of the new year we will review the prospects for trade and investment policy in the new Administration (whichever that will be).

Mexico Update, Sec. 232, Brexit, the new EU

Dear Members and Friends:

Hope you are well and staying safe.

A number of activities have taken place in the past few weeks that we would like to report to you.

First, on Section 232, the US on September 15 called a tariff truce with Canada, lifting its 10 percent levy on unwrought, or P1020, aluminum just hours before Ottawa was to unleash a suite of countermeasures. The US will resume duty-free treatment to September 1, and the next four months will be closely monitored. According to the USTR, “If actual shipments exceeded 105 percent of the expected volume for any month during the four-month period, then the United States will impose the 10 percent tariff retroactively on all shipments made in that month.” Despite the easing of the pressure right now, aluminum trade between the US and Canada will be an ongoing issue going forward.

On Brexit negotiations between the UK and the EU, this past week the last scheduled talks were held between negotiators on a Brexit trade and security deal. Only 90 days remain until the end of the transition period, when Britain will leave the EU’s economic system, deal or no deal. According to EU leaders, there has been “progress on many, many different fields” but the most difficult questions were “still completely open.” The areas of difficulty remain fisheries, dispute settlement, and state support for companies. The EU says the ultimate deadline is late October, although this could stretch into the first half of November. In the final six weeks of the year, the 1,000-plus-page treaty – yet to be agreed – has to be finessed by lawyers, translated into all 24 EU languages, inspected by 27 EU governments (and some of their legislatures), then ratified by the UK and European parliaments.

Samson Atlantic provided an excellent presentation two weeks ago on “The New European Union: How Brexit Resets the US-EU Relationship." It is worth a look as it provides a glimpse of the EU going forward.

A number of items on Mexico: Valeria Moy of the Institute for Mexican Competitiveness provided a look at “The Mexican Economy in Times of COVID: Effects and Perspectives.” This sobering report was given as part of a Wilson Center webcast on “The Pandemic in Mexico: The Scope of the Tragedy.” Two newsletters are attached from Business Development Partners and Monarch Global Strategies. (Monarch is chaired by James Jones, former US Ambassador to Mexico and former Member of the House of Representatives). Although Mexico remains the US’s #1 trading partner, Citibanamex, the Mexican subsidiary of US bank Citibank, projects that Mexico’s GDP will not return to pre-COVID levels until 2025. Key issues from the newsletters going forward are economic, political, and the coronavirus.

The US-Mexico Chamber has re-established its North American Working Group (NAWG), which has the objective of exploring in depth the opportunities that the USMCA brings to the different industries and identifying challenges for which we must prepare. The NAWG aims at making a positive contribution to the process of implementation ahead by establishing a constructive dialogue with US and Mexico government authorities. The results of the first meeting with Mexico’s Senate Commission for the Implementation of the USMCA was held on September 4 are available here. We will keep you all updated on future sessions.

Lastly, our Mid-America Chapter will be holding a webinar on “The North America Trading Bloc in a World of Globalization” next Thursday, October 8, from 9:30 to 10:45 a.m. CDT. Registration information can be found here.

Keep in touch with us at www.usmcocma.org.

USMCA Being Tested Already!

Dear Members and Friends:

Hope you are well and staying safe.

Although the USMCA is just five weeks old, the first issue needing negotiation has cropped up.  Speaking at a Whirlpool plant in Ohio last Thursday, President Trump said that Canada had promised that “its aluminum industry would not flood our country with exports and kill all of our aluminum jobs, which is exactly what they did.”  He indicated that the U.S. would impose a 10% duty on imports of non-alloyed unwrought Canadian aluminum. The tariffs will take effect on August 16 according to the USTR.

Trump originally imposed 232 tariffs on aluminum and steel imports in 2018.  He then lifted them last May to smooth the way for the USMCA - while setting limits on what products could be targeted in the event of a future dispute. However, this year, aluminum imports from Canada rose sharply from February to March but have since leveled off and actually dropped 2.6% from May to June. The Aluminum Association of Canada (AAC) said last week those exports to the U.S. fell 16% in June and 40% in July as their system was starting to rebalance.  Due to the trends and pressure from the American Primary Aluminum Association, the President proceeded with the increase.

Canada then on Thursday evening indicated it would impose $3.6 billion in punitive countermeasures from a preliminary list of products. The decision on which products will be subject to countermeasures will be drawn from the list following comments from industry.

Also on Canada, the Minister of Small Business, Export Promotion and International Trade just released a report entitled “Canada’s State of Trade 2020,” which gives a view of economic activities in 2019 while recognizing the unprecedented global uncertainty of 2020 amid the COVID-19 pandemic.

On Mexico, we have two new reports on economic expectations going forward ("Latin America Monitor" from Fitch Solutions and "Mexico Economic Outlook" from BBVA).  Unfortunately, the forecast for GDP is for negative 7% or greater for this year and only under 2% positive next year. The government has implemented drastic cuts to its operational budget, including 25% salary cuts for high-ranking officials and a 75% reduction in spending on general services and supplies, among other measures, which together are expected to save roughly USD25.0bn. These pro-cyclical cuts could prove to be counterproductive by reducing aggregate demand in the midst of an economic recession.

The Wilson Center and the Institute of the Americas have produced a report on “The Economic and Strategic Arguments for Renewable Energy in Mexico.” The report indicates that, “Notwithstanding AMLO’s position, renewable energy continues to play an important role and has enormous potential for the future in Mexico. . . Among other things, the paper shows that solar and wind projects can supply electricity at a cost below that from conventional gas-fired generation and provide economic development benefits. Further, with battery energy storage and available grid management tools, it is possible to manage the intermittency of renewable energy and integrate it effectively into the transmission grid and distribution networks.”  Interesting possibilities for the future.

USMCA is Official; What’s Next on Trade Issues?

Dear Members and Friends:

July 1 brought finality with the legal start of USMCA. But are things really final? After close to two years of getting NAFTA to USMCA, we now have a more modern, inclusive, and transparent trade agreement. But did USMCA resolve all the problems that were persistent with NAFTA? Probably not!

USMCA and Labor Enforcement

Although the new Rules of Origin regarding autos and auto parts appeared to be the largest and most followed change from the industrial side, there likely will be many upcoming petitions and challenges – especially on labor enforcement matters in Mexico. USTR has named six panelists for the Rapid Response Labor Mechanism, a key tool for the enforcement of the USMCA labor protections. The US national panelists are Janice Bellace, Lance Compa, Peter Hurtgen, Ira Jaffe, Kevin Kolben, and Ed Potter. Their backgrounds can be found here.

Also, the USTR issued “Interagency Labor Committee for Monitoring and Enforcement Procedural Guidelines for Petitions Pursuant to the USMCA.” On June 17, USTR Bob Lighthizer testified before Congress that the government is willing to take action “early and often” to challenge violations of the new agreement when it takes effect. His insistence on the inclusion of labor attaches in the US embassy in Mexico City to monitor the implementation of Mexico’s new, more stringent labor laws show how important this issue is to both the Trump administration and Democrats in Congress. Definitely we will see petitions early in this area.

Tariffs on Canadian Aluminum?

Prior to July 1, there had been some warnings from the Trump Administration that 232 tariffs on aluminum imports from Canada might be put back on. The US is pressing for Canada to impose quotas to slow the surge of its exports of the metal, or else it will reimpose a 10 percent tariff on aluminum imports. Lighthizer brought the matter up during a June 17 Senate Finance Committee hearing on the Administration’s 2020 Trade Policy Agenda.

The US and Mexico's Bilateral Relationship

A new document just released by the Wilson Institute, well worth the reading, is the summary of a convocation of six former US ambassadors to Mexico and six former Mexican ambassadors to the United States to discuss the bilateral relationship. The ambassadors engaged in an intensive and strategic dialogue concerning the future of US-Mexico relations in critical areas, including economic competitiveness, public security, migration, and borders. The participants also discussed the importance of cultural issues, public opinion, and soft power to the bilateral relationship.

China

On China, the phase I trade agreement is still moving forward – although very slowly, with both sides accusing the other of not following through more quickly on commitments. The President indicated last week that he would not be in the mood for any discussion of a phase II until after the elections in November.

Related to the future of the relationship, on May 28, the President said that the US would initiate the process of revoking Hong Kong’s favorable treatment under US law. This began on June 30. On July 2, the Congress passed the Hong Kong Autonomy Act (HKAA) by unanimous consent, providing for mandatory sanctions against individuals, entities, and financial institutions in response to China’s National Security Law for Hong Kong. The legislation was signed by the President last Tuesday with his announcement that “Hong Kong will now be treated the same as mainland China, no special privileges, no special economic treatment, and no export of sensitive technologies.” Fitch Solutions released a report with some analysis of the possible impact on consumers and retailers.

Webinars Coming Soon

Finally, our Chapter will be starting our webinar series shortly. You will all receive announcements with plenty of time to register. In the meantime, you can see our upcoming events here. Plus, see more on our work and resources at www.usmcocma.org.

Updated CBP Implementing Regulations, COVID-19 Impact on Investment in Mexico, and More

Dear Members and Friends:

For those fathers out there, hope you had a great day yesterday.

A number of documents became available last week. Last Tuesday, CBP released an update to their “Interim Implementing Instructions.” It would be important to review these as the USMCA takes effect on July 1.

For those of you serving the auto industry, eight weeks ago the USTR issued a notice indicating that a North American producer of passenger vehicles and light trucks (vehicle producer) may request an alternative to the standard staging regime for the rules of origin under USMCA. Importantly, to be assured of consideration, a vehicle producer must submit a petition with a draft alternative staging plan no later than July 1, 2020. A vehicle producer must submit a petition with its final alternative staging plan no later than August 31, 2020. As July 1 is right around the corner, please ensure that your plans are ready to be submitted.

It is no surprise that COVID-19 is affecting decisions on investment. The firm of Anderssen Gauguin recently produced an analysis of the potential economic impacts of COVID-19 with a specific view on Mexico. The study was provided to us by NASCO. In the short term, bank consensus is that the GDP for 2020 in Mexico could drop from (6.4%) to (9.0%). Overall conclusions are that “Due diligence will require new skills to understand the short- and long-term impacts to industries and companies, as well as how firms can add value and mitigate risk, in order to take advantage of investment opportunities.”

The Albright Stonebridge Group also has produced an update of the progression and response of regions to COVID-19 with a large impact to Latin America, especially Mexico, Brazil, Peru and Chile.

Our friend and prolific writer Colin Robertson has just released his latest study, “What to Do About China: A Menu of Options.” He indicates that “We need to consider a menu of options for eventual reengagement with China: on sovereignty and security, on diplomacy, on trade, on human rights, on Hong Kong, on Taiwan. We need to be conscious that developing and implementing a China policy will be challenging. Effectiveness requires popular support and cross-party consent. It will need to adapt to external events. Most of all, it will require a China willing to deal with us, not as an American vassal-state, but as a middle power, G-7 member, and G-20 partner.” Very important reading on a very important issue.

Getting back to Mexico, the Mexican Ministry of Economy with the support of our Consulate General of Mexico in Chicago is organizing a webinar to discuss USMCA and the new opportunities it will bring to the region, with a particular focus on the Greater Chicago Area. The event is on Tuesday, June 30, at 10:00 am Central. The honored speaker will be with Undersecretary for Foreign Trade Luz María de la Mora. You can register here.

Thanks for your support and stay safe.

Breakfast Series Update: USMCA, China, Brexit, Brazil

A number of trade-related matters have come up since our last update.

USMCA

We mentioned previously that agencies of all three countries would be announcing implementing instructions for USMCA as we approach July 1. We posted one from CBP recently. Several were announced this past Wednesday by the three governments. The release by the Mexican Government is available in two documents:

• Uniform Regulations regarding the Interpretation, Application, and Administration of Chapters 5 (Origin Procedures), 6 (Textile and Apparel Goods), and 7 (Customs Administration and Trade Facilitation) 

• Uniform Regulations Regarding the Interpretation, Application, and Administration of Chapter 4 (Rules of Origin) and Related Provisions in Chapter 6 (Textile and Apparel Goods)

USTR also released the same documents on the same day.

One area of importance to those trading between the two countries and desiring duty-free treatment of goods is the requirement for “Certificates of Origin” – although these will be different from those required during NAFTA. In fact, existing NAFTA Certificates will not be accepted once USMCA goes into effect on July 1. The new required certification data elements will need to be displayed on a spreadsheet similar to that attached here, which was provided by International Tariff Management, a customs regulation firm in Waterbury, CT.  For more information, please contact your customhouse broker or customs legal counsel.  Time is short – so don’t delay!

China

While a number of issues regarding trade, COVID-19, and Hong Kong have been in the headlines regarding our relationship with China, the White House released a paper on May 20 entitled “United States Strategic Approach to The People’s Republic of China.”  While a lengthy report, it details the Administration’s adoption of a “competitive approach to the PRC, based on a clear-eyed assessment of the CCP’s intentions and actions, a reappraisal of the United States’ many strategic advantages and shortfalls, and a tolerance of greater bilateral friction.”

Brexit

Although Brexit has not been in the headlines due to the COVID-19 pandemic, negotiations between the UK and the EU have been held in a virtual atmosphere.  Four rounds have been held thus far but, up to now, little major progress has been made with both sides blaming the other. It is felt that “face-to-face” sessions must take place before any substance is achieved.  It may be October before a draft is realized – and that is getting close to the December 31 deadline.  In the meantime, Mexico and the EU have “upgraded” their agreement and are moving ahead, as are the US and Canada, in negotiating agreements with the UK – all needing to be done by the end of this year.

Brazil

The Department of Commerce released the results of the 18th Plenary of the US-Brazil Commercial Dialogue held May 14 – a continuation of the effort to work cooperatively to improve the commercial relationship between the two countries by preventing, reducing, and removing obstacles to growing bilateral trade and investment.

We are developing a series of webinars focused on topics of historical interest to you.  We will have a list shortly and will keep you informed.  The series will include an ongoing “Happy Hour” where anyone who would like to contribute their concerns and experiences can participate.

Breakfast Series Update: Mexico's Opening Plan plus More on USMCA Implementation

A number of activities in a number of areas from this week to report.

First, on the USMCA, CBP launched the U.S.-Mexico-Canada Center staffed with experts from operational, legal, and audit disciplines, as well as with virtual representatives from Canadian and Mexican customs authorities. The Center will be the cornerstone of CBP’s USMCA implementation plan and will serve as a central communication hub for CBP and the private sector community, including traders, brokers, freight forwarders and producers, ensuring a smooth and efficient transition from the North American Free Trade Agreement to USMCA.

Also, this week the Mexican Government released its plan for the opening of economic activities. The initial plan, which came out on Thursday, showed three stages for “opening.” The second stage, which would include the transportation industry (autos plus), would be able to operate as of May 18 – a date that had been previously reported in the three countries. However, then on Friday, the plan was amended indicating that the transportation industry would be “preparing” for opening from May 18 to May 31 and would fully open on June 1 (see a summary here).

As with the U.S. and Canada, Mexico has, through the federal and state governments, created initiatives to assist with the economic issues created by COVID-19. A listing of all of those initiatives is available here.

As we have mentioned, the “webinar/webcast industry” has grown dramatically as we are moving by necessity into a more virtual communication mode. Two webinars (labeled Episode I and Episode II) have been held in the past two weeks by the law firm of Dickinson Wright, which over the past two years has provided many analyses of the NAFTA 2 renegotiations as they have moved forward. The presentations in these last two webinars have focused on the areas and Chapters of the USMCA that have received much focus moving toward implementation – in particular the auto Rules of Origin and Labor Enforcement. There is much detail in these presentations, but a few points can be made:

• Implementation of the auto ROO will likely be delayed until January 1.

• The final implementing instructions from CBP may not be out until July 15.

• There is a lot of data required for determining RVC and LVC for autos and auto parts.

• The labor rules will be completed by June 30, but there likely will be a handful of complaints filed under the USMCA’s rapid-response labor enforcement mechanism soon after the pact enters into force.

• This is not the time to be reducing your compliance staff; it’s time “to get ready.”

• NAFTA Certs. will not be accepted by CBP following July 1; time between now and then should be spent reviewing the requirements of the new certification “spreadsheets” including data required; thoroughly vet your suppliers and know who the producers, importers and exporters of products in question are.

• Although CBP has issued over 700 rulings regarding imports during the NAFTA timeframe, they may not be applicable in the USMCA environment.

Obviously, more information will come in the next 6 weeks as July 1 approaches. Look at our website, www.usmcocma.org, for materials on COVID-19 and trade and investment with Mexico.

Breakfast Series Update: Latest USMCA Developments

As we move along toward a July 1 Implementation date for the USMCA, we will keep you abreast of the rules as they are released to the public.  Last week we sent you the interim instructions released by CBP, which contained Appendix I on the “Automotive Rules of Origin and Procedures.” Also related to auto is Appendix III, Annexes A and B, having to do with Labor Value Content calculations. A review of these materials will give one the immediate realization that companies looking for certification will have to have significant amounts of data at their disposal if they will be requesting duty-free treatment on July 1 when USMCA is implemented.

Supply chains in many industries are now “out of sync” due to restrictions on manufacturing placed not only on North American companies but those around the world supplying others due to COVID-19. In North America, the U.S. and Canada have similar definitions of what constitutes “essential” and “non-essential” activities. In order to begin syncing to a “new normal” or sets of “interim normals” in the auto industry, the “essential” activities need to be the same for all three countries. In encouraging Mexico to consider changes to its listing of “essential” and “non-essential,” several key Senators last week wrote to Secretary of State Pompeo asking him to work with the Mexican government to incorporate activities in a number of industries into “essential” in order to increase economic activity and trade in the three countries.

The law firm of Dickinson Wright has been very active in documenting the USMCA process from the beginning. Last week they conducted the first of several webinars detailing the elements of the implementation process. There is a lot of “meat” in the 62-page presentation, which all should review.  In particular, the three speakers in the webinar covered syncing the supply chains, getting companies ready for implementation, addressing the new labor law requirements in Chapter 23, and reviewing the requirements of the new certificates of origin. In the end, they encouraged all companies trading within the North American bloc to see what they need to do now to meet what USMCA will require from them.  Will they be “tweaking,” “transitioning,” and/or “transforming” their processes? In regard to the Rules of Origin for the auto industry, the speakers felt that, given all three countries allowing petitions from companies seeking alternate dates for implementing, there is a likelihood that those rules may be put off until January 1.

There has been activity on other trade and investment fronts:

• On April 28, Mexico and the EU concluded negotiations for a new trade agreement; under the new EU-Mexico agreement, practically all trade in goods between the EU and Mexico will be duty-free; the agreement also now includes progressive rules on sustainable development, such as a commitment to effectively implementing the Paris Climate Agreement; it is also the first time that the EU agrees with a Latin American country on issues concerning investment protection; simpler customs procedures will further help boost exports; the broader Global Agreement, of which the trade agreement is an integral part, also covers the protection of human rights, as well as chapters on political and development cooperation; it will also be the very first EU trade agreement to include provisions to fight corruption, with measures to act against bribery and money laundering; details on the agreement, the principles of which were  approved in April of 2018, can be found here.

• On May 5, the UK and US governments will start negotiating a UK-US Free Trade Agreement; this first round of negotiations will last for approximately 2 weeks and will involve around 100 negotiators on each side; a summary of the U.S’ negotiating objectives can be found here.

• Mexico will continue to be a prime location for trade and investment as the USMCA moves forward; however, COVID-19 has put a halt to activities of both existing companies there as well as those considering new investment – as seen by Tom Johnson of Business Development Partners in Mexico City, who provides us with monthly reports.

Our Chapter will be developing a number of webinars on topics of interest affecting our audience in the COVID-19 environment shortly. We will be announcing them well in advance so you can put them on your calendar.