Getting USMCA Ratified, Lowering Trade Deficits on USTR's Trade Agenda

The new NAFTA will reverse outsourcing decisions in the auto industry, the U.S. Trade Representative's annual report on the trade agenda said, and one of the administration's top priorities for 2019 is to get Congress to ratify it. The report, which spends 26 pages on this year's agenda and the rest laying out the status of current free trade agreements, negotiations and enforcement actions during 2018, was released late March 1. Generally, the report defended the administration's actions, arguing they're not protectionist but rather pro-worker, and noting that both imports and exports grew in high single digits during the first 11 months of 2018.

The report argues against assessments that the new NAFTA is a warmed-over Trans-Pacific Partnership that applies to Canada and Mexico, in part because the rules of origin in the U.S.-Mexico-Canada Agreement are stricter than those in TPP. "The weak rules of origin in TPP would have encouraged massive outsourcing to China, with just enough production in low-wage TPP countries -- such as Vietnam and Malaysia -- to satisfy TPP requirements," USTR said. The report also asserts that companies will expand auto parts production in the U.S. because of the new wage rules. Without those rules, USTR said, companies could take advantage of Mexico's artificially low wages and build 100 percent Mexican cars and still get duty-free access to the U.S. market.

"The robust rules of origin contained in the USMCA govern the tariff treatment not only of autos and auto parts, but also of other industrial products such as chemicals, steel-intensive products, textiles and apparel, glass, and optical fiber," USTR said. "The USMCA also establishes procedures that streamline certification and verification of rules of origin and that promote strong enforcement of those rules. These USMCA provisions will help prevent duty evasion before it happens."

The report also says that if either Canada or Mexico signs a free trade agreement with China, the treaty can remain in effect with the other country and the U.S. can terminate it with the one that entered the FTA with China.

Negotiating with Japan with an eye to reducing consistent trade deficits and opening up Japan's market to U.S. autos is a top priority for 2019, as well. The report acknowledged that lowering tariffs on agricultural exports to Japan is urgent because competitors are now in a better position because of TPP.

The report said that the U.S.-Korea free trade agreement did not live up to its promise, with U.S. exports growing by less than $5 billion over the six years it had been in effect -- $10 billion had been estimated -- and South Korean exports to the U.S. grew $15 billion.

As a result of renegotiation, USTR said, "Korea agreed to address long-standing concerns regarding onerous and costly customs verification procedures by agreeing on principles for conducting verification of origin of exports under the FTA and establishing a working group to monitor and address future issues that arise."

The office defended the controversial U.S. worldwide tariffs on steel and aluminum, saying multilateral efforts had done nothing to stop Chinese overcapacity. "It was vital for the Administration to convince markets -- and its trading partners -- that this type of behavior would lead to severe consequences," the report said. It said the tariffs have been "extremely effective in preventing further harm to domestic producers."

Although a Section 232 action would have a seismic impact on trade, the report only wrote two lines about that. "The Administration has also launched an investigation into the national security effects of automobiles and automotive parts. In February 2019, [Commerce Department] Secretary [Wilbur] Ross provided his Section 232 report on automobile and automotive parts imports to President [Donald] Trump."

Last year, the report said it would seek to open Argentina to American pork and fruit; resolve barriers to American lamb, beef, horticultural products and processed foods in Japan; resolve barriers to beef exports in Australia and the European Union; convince India to accept American poultry and pork; and to get permission to export rice year-round in Colombia, Nicaragua and China. It succeeded with pork in Argentina, with lamb in Japan, and with beef in Australia, but remains in advanced talks on hormone-free beef with the EU. It didn't manage to convince trading partners to change the other policies.