Category: Press Releases and Statements
Forecast for U.S.-Russian Trade Relations in 2009 (Revised and Updated Version)
Forecast for U.S.-Russian Trade Relations in 2009 (Revised and Updated Version)
Increasing Russian assertiveness, including in foreign commercial relations, will provide the context of U.S. commercial and trade policy relations with Russia in 2009. This is reflected in Russian treatment of international energy companies and of intellectual property rights (despite recent progress in some areas) and restrictions on foreign financial services. Trade policy with Russia in 2009 will continue to be largely focused on Russia’s WTO accession negotiations.
The initiative on U.S. trade policy with Russia will lie with the Executive, although foreign policy sanctions proposals in Congress are possible in the event of renewed tensions. The U.S. bilateral agreement on Russian WTO accession was signed in November, 2006. At the conclusion of the accession process, the Congress will need to act on permanent normal trade relations for Russia in order for the U.S. to gain full benefits from its WTO accession. Negotiations for a Bilateral Investment Treaty remain incomplete. The “123 Agreement” on civil nuclear cooperation was withdrawn from congressional consideration following the Georgia invasion but can be taken up in the 111th Congress. The U.S.-Russia Energy Working Group continues to discuss collaboration on energy efficiency initiatives, clean coal technologies and fuel cell initiatives.
Russian accession to the WTO remains a U.S. policy priority, but Russian commitment to the process has been strongly linked to other perceived interests and has therefore been variable. Recently deflating commodity prices appear to have had a salutary effect on at least their rhetorical level of commitment. Accession talks had slowed in July of 2008 even before the invasion of Georgia and, although the invasion did not elicit punitive measures from the Congress, it did further slow down accession talks. Then in August Prime Minister Putin disparaged WTO membership and threatened to abandon commitments Russia had made during 15 years of accession talks, including bilaterals with the U.S. on leasing of aircraft, telecom equipment and phytosanitary measures. Russia’s top negotiator quickly reaffirmed their commitment to WTO accession on the prescient grounds that the financial crisis might grow into a commodity crisis and by November President Medvedev was urging quick accession.
U.S. exports of meat and poultry (Russia recently reduced their quota for chicken imports from the U.S., but raised the pork quota), treatment of state owned enterprises, IPR protection, and Russian treatment for foreign investment, especially in the energy and automotive sectors, will continue to be areas of potential dispute. On the positive side, the U.S. could support Russian entry into the OECD and, of course, in time grant PNTR, if not outright repeal of Jackson-Vanik.
Cuba Forecast for 2009
Initially, we expect President-elect Obama to do exactly what he said he would do during the campaign — loosen or lift restrictions on the ability of Cuban Americans to travel to Cuba and to send money to family members. We also expect that Obama will initiate additional diplomatic contacts within already-established bilateral channels, for example on migration, narcotics and military issues.
While Cuba is unlikely to be a top priority for the incoming administration, these changes could occur fairly quickly given that these were promises that Obama made during the campaign. Latin America experts, including individuals close the Obama campaign, suggest that any other changes for example restoring the people-to-people contacts and travel exchanges that existed during the Clinton administration would be put off until later. The success or failure of initial diplomatic contacts could help determine how quickly the administration decides to act on broader initiatives.
Congress is unlikely to alter Cuba sanctions in any significant way next year, at least not without a clear signal from the President. Speaker Pelosi and Senator Reid are aware of divisions in the caucus on Cuba policy and Senator Reid appears to have little appetite for a dramatic policy change. (This prediction could change were certain changes to occur in Cuba.) That said, Members of Congress will likely introduce multiple bills to end the embargo, end the travel ban, and facilitate trade by allowing direct banking and removing Bush administration restrictions on payments for agricultural goods. Of those efforts, Congress could move early to reverse the cash in advance rule governing U.S. exports to Cuba. NFTC/USA*Engage staff are participating in meetings of the Cuba legislative working groups and plan to set up meetings next year with relevant hill staff.
Update on recent NFTC efforts
Over the past several months, NFTC and USA*Engage have been working to encourage the next administration to take a new approach to U.S. Cuba policy. Earlier this month, NFTC and USA*Engage spearheaded a business community letter to President-elect Obama, which was signed by ten other associations including the American Farm Bureau Federation, Business Roundtable, and U.S. Chamber of Commerce. The letter called for the eventual end to all sanctions as well as the immediate removal of travel restrictions on American citizens and the temporary suspension of certain trade restrictions to allow American companies to help Cuba rebuild from the recent hurricanes.
Also this month, NFTC Vice President Jake Colvin released a paper, The Case for a New Cuba Policy, in which he suggests that changing Cuba policy could have broader foreign policy, national security and domestic political benefits. Drawing on the advice of former Treasury Department officials, he also highlights the broad discretion that the Executive Branch retains to change the restrictions on travel and trade.
Largely as a result of these efforts, NFTC has enjoyed good press coverage on Cuba policy in recent weeks, including in the Christian Science Monitor, Los Angeles Times (twice), Miami Herald (twice), U.S. News and World Report, CQ, Reuters and Inter-Press Service.
Export Control Forecast
Export Control Forecast
Export control issues are rarely on a new Administration’s front burner, and this time will not be an exception. Although there are a number of issues looming, progress on them will probably wait for the arrival and confirmation of relevant officials at Commerce and State, and those are rarely in the first tier of appointees. At State, look for Bob Einhorn, who was Assistant Secretary in the Clinton Administration, to play an important role in nonproliferation policy, which is where the export control function is housed. Bob’s main focus is nonproliferation, and export controls will likely be viewed as more of a management issue to be assigned to someone else. Career officials there have made some progress in the past two years in improving efficiency and responsiveness, and a good outcome would be if they are simply permitted to continue their progress.
There are no rumors yet for BIS positions, but look for people who understand the business position and global supply chains but are not directly connected with affected companies.
On issues, much of NFTC’s short term effort is devoted to making sure that outgoing officials don’t do anything to make the situation worse. The major pending issue, on which we are hoping the clock will run out, is a final regulation on deemed exports. The report of the Deemed Export Advisory Committee aroused a great deal of opposition in the private sector. In essence, it proposed a trade off – a narrower range of items/technologies for which a deemed export license would be required and a broader security review of individuals. There is widespread skepticism that the former will ever occur, and the latter is tantamount to security clearance vetting for a potentially large number of people. There is no guarantee that the incoming Administration will take a better approach, but it is hard to imagine it will be worse.
Another relatively new problem is efforts by the Justice Department to inject itself into the licensing process and obtain a “seat at the table.” This would essentially be giving law enforcement officials a policy role, which is precisely what has led to our visa policy problems in the current Administration. Once again, we’re hoping time runs out on this idea, and the new people won’t be interested in it.
Other pending issues include finishing the intra-company transfer license regulation, which has been roundly panned by business so far, and yet another attempt to create a process for resolving commodity jurisdiction disputes, also the subject of interagency battles, to the surprise of no one.
If these issues are not finished by January 20, it will probably be some time before they are taken up and worked out in the new administration.
Legislatively, we do not see rapid movement, despite the growing realization in Congress that the EAA is badly out of date. Even so, the same problem of sharp ideological differences that has prevented action on bills over the past twenty years persists, and we do not see enthusiasm on the part of committee leaders for moving aggressively in this area. The House Foreign Affairs Committee will give priority to the State Department authorization and the Foreign Assistance authorization. Cong. Sherman and Manzullo will probably try to move their bill again, but they will first need to have a dialogue with the new administration about it and then will need to persuade Chairman Berman that it is relatively benign.
On the Senate side, there does not appear to be great enthusiasm for moving an EAA bill, except that the 2008 Iran sanctions bill, which contained Sen. Dodd’s title on shipments to countries of diversion concern, did not pass at the end of the 110th Congress, which could prompt him to try to move that title on its own or in conjunction with another Iran package. (We expect the Committee to consult closely with the incoming administration before acting on Iran sanctions.) The business community reaction to that title – not the rest of the bill – was fairly benign, in large part due to the bill’s careful drafting. The danger, of course, is not so much in the text but what might be added to it along the way. Many of the senators who so vigorously opposed EAA reform in the past, like Senators Helms, Thurmond, and Thompson, are no longer there, which may marginally increase the chances of something happening, but a number of strong and articulate opponents, like Senators Kyl and McCain, remain to guarantee that any bill’s path would not be smooth in the Senate.
One issue for the business community will be whether it wants to develop draft legislation to hold in reserve in case either the Obama Administration or Congress decides to move this year. That will be a topic of further discussion amongst our members.
Trade Policy Forecast
The dynamic between the Administration and Congress will obviously completely change after January 20th with a unified government and we should be careful not to predict future action based on behavior of the recent past.
The Democratic caucus in the House is very diverse and Speaker Pelosi has been tough but pragmatic about how far to push them on trade in the past year. That coupled with elections and the incredible lack of trust between Congress and the Bush Administration all combined to give us the time out on trade that we’ve experienced in 2008.
What we’re likely to see in the first six months of 2009 is an internal discussion between the Administration and those in Congress, including trade skeptics and those that are anti-trade. Skepticism is not anti-trade or protectionist and that is an important distinction to keep in mind, with the pure anti-trade wing of the Democratic caucus still in a relatively small minority. There is likely to be a review of existing trade agreements to develop enforcement or compliance agenda for what is already in place. This will include a thorough review of NAFTA, to begin a more comprehensive discussion with NAFTA partners on what might be accomplished without reopening the agreement. There is also likely to be a review of the model FTA with an eye toward revising aspects of it, especially labor and environment provisions.
While a multilateral trade agenda is more easily pursued by a Democratic Administration and Congress than bilateral FTA’s, trade preference programs are also traditionally not as controversial.
The primary trade preference programs such as the Generalized System of Preferences (GSP) and the Andean trade preferences are up for renewal again this year as the can was kicked down the road on any significant reform in this current session of Congress (AGOA however has been renewed until 2015). Rep. Jim McDermott of Washington will likely again introduce his preference reform legislation (New Partnership for Development Act), originally introduced in the Fall of 2007 with Rep. Phil English. The piece has a strong capacity building component to it and that aspect will possibly get more attention than trying to increase labor commitments as eligibility criteria. Because the preference programs as a whole are geared to poverty reduction, there may be more room for compromise on labor than with any bilateral agreements. Mr. McDermott’s staff has also been diligent in seeking out a wide range of views and finding bipartisan common ground. GSP however is likely to face an uphill battle with Senate Finance ranking Republican Senator Charles Grassley as he seeks to significantly reduce the benefits of middle income countries such as Brazil and India.
A promising departure from the traditional U.S. bilateral FTA formula is the recent work of USTR on joining the framework of discussions for the existing P-4 agreement signed by Chile, New Zealand, Brunei and Singapore. Those countries have signed an agreement but are still negotiating the investment and financial services chapters. The U.S. joined ongoing negotiations for those chapters, and in September, announced that the four nations have opened the broader agreement for U.S. to enter negotiation on what has been renamed the Trans-Pacific Strategic Economic Partnership Agreement or TPP. All chapters of the original P-4 text may now be on the table for review and subsequently, Peru and Australia have announced they will also join the first round of negotiations in March, with the possibility that Vietnam will also participate in some capacity.
This regional architecture, different in formula from either the purely regional efforts such as the ill fated Free Trade Agreement of the Americas or the hub and spoke series of bilaterals that form the Dominican Republic-Central America Free Trade Agreement, could well signal a new way forward for this Administration to engage in the negotiation of high standard meaningful trade liberalization while working through the baggage of opposition that exists with the three FTA’s still in the pipeline of Congressional approval: Colombia, Panama and Korea.
I unfortunately do not see new bilateral negotiations beginning in the next year. While the Administration and Congress work through the disposition of the existing three bilaterals and develop a way forward on the Doha Round the focus I believe will be to re-engineer the rules by which we engage bilaterally. The pace of that discussion may be influenced to a large degree by the success or lack of it in the Doha Round. However, when we decide to re-engage on FTA’s, there will be, I believe closer consultation with Congress on choosing the partners, with the focus on countries with the greatest commercial significance and the best potential for expanding trade and job creation in the U.S.
A question more than a prediction will be whether or not this Administration, responding to pressure that the rest of the world is racking up bilateral trade agreements while the U.S. is stalled, begins to respond by either challenging some of those agreements because they omit large sectors and do not meet the WTO criteria of “substantially all trade” or begins to consider doing the same, looking at opportunities to negotiate sectoral or less than comprehensive agreements.
Legislatively, the trade agenda will become much more a component of a broader worker focused competitiveness agenda, and the first step will likely be the completion of a new Trade Adjustment Assistance bill, building on the work that went on this summer, led by Senate Finance Chairman Baucus and working with the bill the House already passed, to provide an overhaul of Trade Adjustment Assistance. The program’s continued funding was included in the current Continuing Resolution, which expires in March, 2009, and it is likely to be resolved before that expiration date.
Of the three FTA’s in the pipeline, Panama may be the first to be acted on by Congress, hopefully in the first six months. Colombia will likely be reintroduced and passed this year after some additional commitment or measurable milestone on labor union violence is negotiated with the new Administration. Korea is less easily predicted given the current state of the U.S. auto industry. Assuming the rescue plans gel, the new Administration is likely to put forward some proposal on autos to the Koreans, perhaps modeled on earlier suggestions by Rep. Sander Levin, which will effectively put the ball back in the Koreans’ court. The risk is that the most commercially significant and valuable of all the recent FTA’s may be the least likely to come to fruition in 2009 without strong and steady pressure on both the Administration and Congress to act.
There is an argument that the economic crisis and other longstanding issues such as healthcare reform will leave little time or energy to focus on trade. I do not see this as a valid concern with the Administration and USTR, but does have validity when looking at resources and the calendar for the trade committees of jurisdictions, since they will be heavily involved in healthcare and tax policy issues. While there is reason for optimism that a completely Democratic government will develop a positive trade agenda, much more engagement by the business community on all fronts, with tangible and workable ideas is needed now more than ever.
NFTC Featured in Congressional Quarterly Article on Trade Policy
The December 8 edition of CQ Weekly contained a cover story on international trade policy that featured the National Foreign Trade Council, and I thought you might be interested in taking a look at it. It provides a clear and incisive description of what is going on in trade, how the Washington policy community is reacting and how that might change as a new administration takes office. The NFTC has been and will continue to be a key part of that, and it’s nice to see that recognized periodically. Below is an excerpt from the article followed by a link to all of it. Questions or comments? Give me a call (202-887-0278) or email (breinsch@nftc.org).
Drawing a Fine Line on Trade
CQ Weekly
Joseph J. Schatz
December 8, 2008
On the wall of his office at the National Foreign Trade Council (NFTC), Bill Reinsch displays an old newspaper clipping with an improbable headline: “Free Trade Called Threat to Day Care.”
The article, which Reinsch has next to a map of the world, is a relic of the 1980s, when he was a Senate staffer helping to negotiate a trade pact with Canada, the precursor to the North American Free Trade Agreement. Some Canadians feared that lowering trade barriers with their richer, stronger neighbor would restrict their government’s ability to provide social benefits to workers.
Back then trade was viewed, and discussed, in relatively simple, stark terms. Opponents used whatever ammunition they could find to criticize it, usually pointing to the threat of lost domestic jobs or the erosion of national sovereignty — or even to such seemingly unrelated matters as day care.
Those who favored expanded commerce between countries — such as the NFTC, which was founded by U.S. companies in 1914 — generally prevailed by arguing basic economic principles that date to Adam Smith. The result has been a decades-long stretch of expanding markets and increasing globalization. Now, though, the trade debate is suddenly a lot more complicated….The need for a calibrated message is especially clear to Reinsch, the president of the NFTC since 2001, who says he is concerned that organized labor and other opponents of U.S. trade policy have succeeded in “putting pro-trade people on the defensive.”
http://www.cqpolitics.com/wmspage.cfm?docID=weeklyreport-000002994051
Changing Dynamics of China Trade Debate
Changing Dynamics of China Trade Debate
The adversarial relationship between Congress and the Executive over commercial policy toward China should be less acrimonious in 2009 with Congress initially deferring to the new Administration. While the recession could increase popular pressure for trade restrictive measures, it may reduce the bilateral trade deficit which could diminish protectionist pressure with respect to China. President-elect Obama will decide whether to continue the Strategic Economic Dialogue and, if so, whether Treasury continues to lead. The BIT negotiations to which the SED gave rise will in any event continue and will likely lead to a weaker agreement than the U.S. business community would like to see.
The 110th Congress saw nearly 100 China-related bills introduced. Most of these were trade restrictive covering a range of issues: treatment of China as a non-market economy, IPR protection, food and product safety, the trade deficit, safeguards to address import surges, the use of countervailing duties, currency manipulation, Tibet and Taiwan, of which only five became law. Revaluation of the RMB and a smaller trade deficit along with a new Administration of the same party may well diminish congressional appetite for restrictive legislation. One area in which Congress could act is to define currency manipulation more clearly by amending the 1988 law which mandates Treasury’s bi-annual exchange rate reports, although if the Obama Administration determines that China has manipulated its currency in its first report, it would lessen the likelihood of Congressional action.
If the Congress does let the Executive Branch take the lead, much will depend on how assertive the new Administration decides to be. One early indicator will be how Treasury treats Chinese currency in its annual exchange rate report to be released in April. Other indicators will be USTR’s willingness to use WTO dispute resolution and rulings on the likely increase in filings of countervailing duty cases claiming that currency manipulation constitutes a subsidy. Likewise there may be an increase in “421 cases” filed on the basis that surges in Chinese imports caused material injury, especially coming from the textile industry.
One positive outcome of the December SED meetings was a “Ten Year Framework for Energy and Environment Cooperation” that creates seven “EcoPartnerships” between local governments, universities and NGO’s in the two countries. While the Obama Administration may take a stronger position on CVD’s and 421’s, it will also be likely to build on these SED initiatives.
NFTC Tax Committee Letter to President-elect Obama’s Transition Team
Forecast on South Africa
South Africa
South Africa is unlikely to be an issue for U.S. trade policy in 2009, although the country continues to play a sometimes adversarial role in the Doha Round. Uncertainties about South African political leadership will dominate bilateral relations which have some potential for impacting commercial relations.
The FTA negotiations between the US and SACU were suspended in 2005, leading to negotiations for a “Trade and Investment Development and Cooperation Agreement,” signed in July of 2008, which committed the parties to continued dialogue via a Consultative Group. In addition to a monitoring function the Group is to try to conclude trade and investment enhancing agreements. Agreements on customs are foreseen, but not a BIT, which would have the greatest commercial significance to the U.S. A return to US-SACU FTA talks is very unlikely in the foreseeable future.
AGOA, which in 2004 was extended to 2015, is the U.S.’s most significant commercial policy affecting Africa and South Africa, but is coming under scrutiny as are preference programs generally. Congressman McDermott and others introduced legislation in 2008 to extend AGOA benefits beyond Africa, which was unwelcome to many African beneficiaries. It is probable that this legislation will again be introduced in 2009.
AGOA’s impact has been most significant in the motor vehicle industry in South Africa whose exports of fully built-up vehicles and components to the U.S. have been increasing annually under AGOA. The original South African industrial policy program for the motor car industry, the Motor Industry Development Program, provided export subsidies and import duties, still today at 30%, was widely regarded as blatantly WTO-illegal. Under the program exports grew from nearly zero in the mid-‘90s to 150,000 vehicles in 2007, exports of components (mainly catalytic converters and stitched leather seat covers) increased and high rates of investment followed. In 2004 Australia threatened to bring a WTO case challenging the program as a prohibited subsidy and in 2008 the program was replaced by a modified program deemed to be WTO compliant.
South Africa has continued to champion developing country positions in the Doha Round, most recently demanding special relief for SACU beyond that available to other developing countries. Specifically, South Africa is asking that additional tariff lines protecting SACU’s textile and clothing sector be exempted from cuts required under the general formula..
The South African domestic political situation remains uncertain, but so far is best characterized as politics rather than political instability. In September the ANC unceremoniously replaced Thabo Mbeki as president with Khalema Mothlante who is to serve until April when Jacob Zuma is expected to be elected president for a five year term. Despite widespread nervousness over the fact that Zuma comes to power on the support of the trade unions and the Communist Party, and continues to face charges of corruption, he has been generally successful in reassuring business that he will continue the successful macroeconomic policies of his predecessors.
Business Community Calls for New Cuba Policy
Urges President-elect Obama to ‘Immediately Remove Travel Restrictions’ and Allow American Companies to Help Cuba Rebuild from Storms
Washington, DC – The National Foreign Trade Council (NFTC) and USA*Engage, along with ten other leading trade associations today sent a letter to President-elect Barack Obama, urging the incoming administration to reexamine current U.S. Cuba policy and consider new approaches that would benefit U.S. national security and economic interests and the Cuban people.
The associations, which include the American Farm Bureau Federation, Business Roundtable, and U.S. Chamber of Commerce, applauded President-elect Obama’s support for suspending restrictions on family remittances, visits, and humanitarian care packages from Cuban Americans, and noted that while “these are excellent first steps…we urge you to also commit to a more comprehensive examination of U.S. policy.”
“Your administration has a unique opportunity to take steps to end nearly 50 years of isolation from Cuba and the Cuban people. We support the complete removal of all trade and travel restrictions on Cuba. We recognize that change may not come all at once, but it must start somewhere, and it must begin soon,” they wrote.
In addition to calling for a comprehensive reevaluation of policy, the associations urged President-elect Obama to “immediately remove travel restrictions and allow Americans to act as ambassadors of freedom and American values to Cuba,” and to engage in bilateral discussions with Cuban government.
The groups also asked President-elect Obama to suspend certain restrictions on trade that would allow American companies to help Cuba to respond more effectively to the humanitarian crisis in the wake of recent hurricanes and storms in Cuba. They wrote that, “the United States could exempt agricultural machinery, heavy equipment and other exports from the embargo which would provide the goods and technology needed to rebuild from recent storms. The United States could also license direct banking services in order to facilitate these sales.”
“There is an opportunity to change policy which would open a new market for American businesses and help to demonstrate a new approach to foreign policy,” said Jake Colvin, Vice President for Global Trade Issues at the National Foreign Trade Council. “Helping Cuba rebuild from the storms could be a novel way for American companies to help reach out to the Cuban people.”
In the letter, the groups note that the U.S. embargo against Cuba is ineffective because it is unilateral. “Without the support of our allies and the larger international community, U.S. sanctions serve only to remove the positive influences that American businesses, workers, religious groups, students and tourists have in promoting U.S. values and human rights. Sanctions are also blunt instruments that generally harm the poorest people of the target country rather than that country’s leaders. There is no better example of the ineffectiveness of unilateral sanctions than in the case of Cuba.”
The associations highlighted the cost to American businesses and workers, citing a 2001 U.S. International Trade Commission estimate that showed the Cuban embargo costs U.S. businesses up to $1.2 billion annually in lost sales. “The real cost, however, is the influence that the United States has lost by voluntarily isolating itself from Cuba during an important moment of transition. Far from providing leverage, U.S. policies threaten to make the United States virtually irrelevant to the future of Cuba,” they wrote.
“Continuation of the status quo,” they concluded, “could leave the United States isolated from the Cuban people for another generation.”
In addition to the NFTC and USA*Engage, the letter was signed by the American Farm Bureau Federation, the American Society of Travel Agents, Business Roundtable, the Coalition for Employment through Exports, the Emergency Committee for American Trade, the Grocery Manufacturers Association, the National Retail Federation, the Organization for International Investment, the U.S. Chamber of Commerce and the U.S. Council for International Business.
“For the first time in years, American companies are paying attention to Cuba,” said Colvin. “They may not expect dramatic changes in policy immediately, but they want to be well-positioned for the future.”
For a full copy of the letter, please follow the URL:
http://www.nftc.org/default/Press Release/2008/BusinessAssociationLtrCuba.pdf
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USA*Engage (www.usaengage.org) is a coalition of small and large businesses, agriculture groups and trade associations working to seek alternatives to the proliferation of unilateral U.S. foreign policy sanctions and to promote the benefits of U.S. engagement abroad. Established in 1997 and organized under the National Foreign Trade Council (www.nftc.org), USA*Engage leads a campaign to inform policy-makers, opinion-leaders, and the public about the counterproductive nature of unilateral sanctions, the importance of exports and overseas investment for American competitiveness and jobs, and the role of American companies in promoting human rights and democracy world wide.
The National Foreign Trade Council (www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.
