Tag Archives: Donald Trump

Trade Takeaways from Trump’s Second State of the Union Address

Photo source: Pixabay

Alicia Nicholls

Last night (February 5, 2019), United States (US) President, Donald J. Trump, delivered his second State of the Union (SOTU) address before a joint session of the US Congress. The President highlighted his administration’s progress on his campaign promises, including on immigration, trade, tax policy, infrastructure and national security. This article takes a brief look at the trade takeaways from the SOTU.

The Context

President Trump came to office with the promise, inter alia, of effecting a seismic shift in US trade policy. America, Trump argued, was being taken advantage of by other countries, while “unfair” trade deals were leading to the outsourcing of American jobs to the detriment of American workers and the American economy.

An underlying theme of President Trump’s SOTU address last night was that of “promises made, promises kept”. The President reminded viewers of his campaign promise “to defend American jobs and demand fair trade for American workers”, while highlighting the achievements made thus far.

Much of President Trump’s trade policy actions have been done through executive actions utilising legislation like the Trade Act which empower the President to take certain trade-related action, such as raising tariffs. Indeed, in just two years, the Trump presidency has heralded a decidedly mercantilist turn in US trade policy, marked by increased unilateral action (even against traditional US allies, such as Canada and the EU), the US’ withdrawal from the Trans-Pacific Partnership Agreement, the renegotiation of the tripartite North American Free Trade Agreement (NAFTA), more aggressive action against China, coupled with threats of withdrawal from the WTO and blockage of appointments/re-appointments of WTO Appellate Body members.

Main Trade Takeaways from SOTU

However, in his address, President Trump focused exclusively on trade policy achievements regarding increased enforcement of US trade laws and the renegotiation of NAFTA. Below are the takeaways:

US-China Trading Relations

China has been the principal target of President Trump’s trade policy actions, leading to an escalation in trade tensions between Washington and Beijing which, according to the major multilateral institutions, are already negatively impacting global trade flows and dampening the outlook for the global economy.

In 2018, the Trump administration imposed tariffs on $250 billion worth of Chinese goods, to which Beijing retaliated with tariffs on $110 billion worth of US goods. Although those parties threatened to impose further tariffs, they made a truce on the sidelines of the G20 Summit in December 2018 not to impose any further tariffs for a 90-day period while trade talks resumed between them. Since the start of the truce, two sets of face-to-face trade talks have been held between the two economic behemoths.

While President Trump proudly boasted that America is “now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end”, he further noted that he and Chinese President Xi were working on a new trade deal. The President, however, reiterated that any US-China trade deal “must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs”.

From NAFTA to USMCA

In his SOTU address, President Trump noted that “to build on our incredible economic success, one priority is paramount – reversing decades of calamitous trade policies”. To this effect, one of the President’s major trade policy campaign promises was the renegotiation of NAFTA, an agreement which he derided as a “historic blunder” in his SOTU address.

This renegotiation was accomplished last year with the signing of a replacement agreement called the US-Mexico-Canada (USMCA) Agreement. Some of the major changes include the requirement that 75 percent (up from 62.5 percent under NAFTA) of an automobile’s contents needs to be made in North America for it to qualify for duty-free treatment, greater access to the Canadian dairy market for US farmers, an extension of the terms of copyright protection, stronger labour provisions, a sunset clause and provision for review of the Agreement every six years.

The USMCA was signed in November 2018, but is awaiting ratification by the three parties. However, some Democrats have raised issues with the Agreement. President Trump encouraged Congress to ratify the USMCA, in order to “bring back our manufacturing jobs in even greater numbers, expand American agriculture, protect intellectual property, and ensure that more cars are proudly stamped with our four beautiful words: “Made in the USA.”

United States Reciprocal Trade Bill

President Trump also made a strong appeal to Congress to pass the United States Reciprocal Trade Bill (HR 764), “so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the same product that they sell to us”.

The US Reciprocal Trade Bill, was introduced in the House on January 24, 2019, by Republican representative from Wisconsin’s 7th District, Sean Duffy (R-WI), who is currently the ranking Member of the Financial Services Subcommittee on Housing & Insurance.

Inter alia, the Bill provides that if the President determines that the rate of duty or non-tariff barriers imposed by a foreign country on a particular US good is “significantly higher ” than the rate of duty or non-tariff barriers imposed by the US on that same good imported from that country, the President is empowered to take several actions, including imposing a rate of duty on imports of that good that is equal to that imposed by that country.

The Bill currently has 19 co-sponsors. According to Representative Duffy’s press release, the proposed legislation would give the President “more flexibility in responding to foreign tariffs on U.S. products” and “the tools necessary to pressure other nations to lower their tariffs and stop taking advantage of America”.

If passed, the Bill will, however, likely be challenged by affected countries through the WTO’s dispute settlement system. However, it should be noted that its successful passage by Congress is not guaranteed. Firstly, the Democrats are the majority in the House of Representatives since January 2019, some of whom have openly criticised Trump’s protectionist trade policies. Secondly, and more importantly, some members of Congress, including some Republicans, are already proposing bi-partisan legislation to limit the President’s authority to unilaterally impose trade restrictions for national security purposes.

In the House, for example, Representative Mike Gallagher (R-Wi-8) introduced H.R.940 to amend the Trade Expansion Act of 1962 to impose limitations on the authority of the President to adjust imports that are determined to threaten to impair national security, and for other purposes. Meanwhile, in the Senate, for example, Senator Mike Lee (R-UT)  introduced the Global Trade Accountability Act (S 177), which would amend the Trade Act of 1974 to require congressional approval of unilateral trade action. The House version (HR 723) was introduced by Representative Warren Davidson (R-OH-8).

However, the passage of any of these proposed bills limiting the President’s trade policy powers are not a sure bet either. Even if passed by both Congressional chambers, the bill would almost certainly be vetoed by the President, and would require a two-thirds majority in each house to override a presidential veto, which is not an easy feat.

The big takeaway

The big takeaway is that President Trump is convinced that his mercantilist trade policy is delivering for the American people, a fact he evidences by the increase in jobs and economic growth. Indeed, a fact sheet  was released by the White House on the same day highlighting the President’s trade policy achievements.

However, his trade policies have come at the cost of increased trade tensions, alienating traditional US allies and creating an impending crisis in the WTO’s Appellate Body whose membership is now down to three – the minimum number of members required to hear an appeal.

Several WTO members have already initiated complaints against certain of President Trump’s trade measures, and/or have raised issues during the US’ most recent Trade Policy Review (TPR).

However, barring some Congressional limit on Presidential trade policy powers, the current trade policy approach is likely to continue for the remainder of the Trump Presidency.

The full transcript of the President’s SOTU Address may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Advertisements

Trump ‘trumps’ the WTO

Javier D. Spencer, Guest Contributor 

Javier

THE WTO

The 1995 organization has done considerably well to date as an arbiter of international trade. The organization was created as a response to the economic situation in the 1930’s that resulted in global tensions. Its predecessor, the General Agreement on Tariffs and Trade (GATT), was ostensibly limited in scope and so, the consensual demand was for an inclusive and comprehensive institution to govern and promote international trade.

Achieving inclusive and comprehensive trade was daunting; nevertheless, the organization has attained the aforementioned buzzwords and continues along this trajectory. For instance, the WTO started with only 123 signatories under the Marrakesh Agreement in 1994 and today has over 160 members, with pending ascensions. Additionally, it is remarkable to note that the WTO agreements are comprehensive. They cover trade in goods, services, agriculture, sanitary and phytosanitary measures, intellectual property, rules of origin, subsidies, dispute settlement, and many more.

The WTO rests on its founding principles of non-discrimination, reciprocity, transparency, safety values, and binding and enforceable commitments such as the tariffs commitments in order to liberalize and promulgate free trade as a global public good. With these at its core, it is fair to say that the organization has lived up to its core function and objective.

Having regard to the organization’s core functions and objectives, governing global trade is no easy feat, especially taking into consideration competing political and economic interests among WTO member . The organization is a rules-based organization and these rules are agreed upon by consensus of member states. In this regard, the organization’s Dispute Settlement system remains a feather in the cap and its prized arm. The Dispute Settlement Body (DSB) has provided stability to the global economy by ensuring that agreed rules are enforced. Since its existence, the DSB has successfully deliberated on many cases that have maintained the integrity of the WTO rules.

Despite its successes, the future of the WTO remains vulnerable. At present, it is on the receiving end of dire threats from one of its founding members – the United States (US). Interestingly, the US led the global effort to establish the machinery to manage global trade. However, the present President of the United States (POTUS) lashes the organization as the worse deal for the US. POTUS’ actions to date are alarming – from delaying the appointment of members to the WTO Appellate body to dusting off Section 301 of the Trade Act to a brewing trade war with China and other countries to the burial of the NAFTA to public statements of leaving the WTO and much more. We should be worried about the future of the WTO.

TRUMP

The WTO is lauded by many countries as a fair and just organization that seeks to level the playing field and as much as possible promulgate all-inclusivity. However, not all world leaders share these sentiments. One example is the President of the United States, Donald Trump. Trump was elected as the 45th President of the United States and has been in office since January 2017. He triumphed over his opponent with his patented and infamous campaign slogan, “Make American Great Again”, a slogan that is purported to usher in better economic times for the United States of America. It was envisioned to focus on military operations and to focus on implementing mechanisms to fillip the job market and ailing industries in the US. The implication of this, of course, is that Trump’s actions would focus on US’ external trade policy. However, at what cost is Trump willing to “Make America Great Again?” Does he mean to make America great again by ruffling the feathers of a peaceful, collaborative, rules-based multilateral trading system?

It is without a doubt that Trump has very little faith in multilateral organizations. To date, the POTUS has adopted many controversial positions in global affairs, with harsh jabs towards the WTO. He has aired that the WTO does not serve the interest of the US and as such, the organization is biased and unfair to the country. He has further iterated that the WTO and the EU are collaborating against the US and as a result, transactions by these organizations are very ‘bad’ for the United States. These sentiments all lead to a threat to withdraw the US from the organization – much like the US withdrawal from the UN Human Rights body. The threats and dire warning aimed at the multilateral organization from the POTUS show isolationism, protectionism, nationalism, and I even dare say reverse globalization.

The stance on global trade, in particular, and actions that are taken show that POTUS’  external trade policy remains a mystery. One thing is for certain, he strives to deliver on his campaign promise of remedying the trade [im] balances that the US has with other countries, in an effort to “Make America Great Again”. The achievement of this infamous slogan has led to a trade war with China, sanctions against Turkey, a failed trilateral negotiation of NAFTA and other trade turbulences – with surely more to follow.

In early July, in a claim to fix the unfairness in trade, the US imposed 25% tariffs on $34 billion worth of Chinese goods. This then extended to steel and aluminium imports from Canada and the European Union. (The move to extend the imposed tariffs to the other countries could be looked at from the lens of ensuring that Chinese firms do not engage in deflective trade strategies by establishing firms in these territories and export under the guise of these territories.) As the US imposed these tariffs on Chinese goods, China returned the favour by imposing tariffs on US goods and as such, a tit-for-tat trade war ensued. For Trump, he deemed that the imposition of tariffs was necessary and served as “national security” interest of the United States. This exemption clause is enshrined in the 1994 GATT Article XXI of the WTO agreement and is certainly one loophole of which the POTUS will take full advantage.

The example of the US-China brewing trade war definitely puts the global rules-based system in peril. It brings into question the authority or jurisdiction of the WTO to advise the US of the legitimacy of “essential” or national security claims. However, on the other hand, supporting Trump will legitimize a major loophole in the global trade rules. At this crossroads, the WTO faces an uphill battle with a world leader’s determination to dismantle decades of the global trade order.

The POTUS’ actions to weaken the organization goes beyond Section 301 of the Trade Act of 1974, which was the US domestic legislation used to spur the trade war. In fact, there is a draft a bill that the POTUS has advanced that would have dire consequences for the WTO and the global trading system. The Fair and Reciprocal Tariff Act (FART Act) is de facto a mechanism for the POTUS to completely disregard the WTO rules. In other words, the Act confers rights on the POTUS to adjust tariffs rates with countries outside of the WTO jurisdiction, without much red tape and authorization of Congress.

 WHAT WILL HAPPEN?

With all that is happening now in the global trade environment, the brewing question is what would happen if the WTO were dismantled by the US. As a global hegemon, the US’ exit of the WTO will certainly cause a domino effect. Other countries will follow and move to impose tariffs to their absolute advantage – making the rules-based organization and its decades of work useless.

POTUS certainly has no faith in the multilateral trading system and is reshaping the US’ external trade policy by striving for bilateral trade agreements with countries. There is nothing inherently wrong with negotiating bilateral agreements with third-party states. In fact, there are provisions made within the WTO rules-based system that enables countries to create regional trade agreements. However, it would seem that POTUS’ aim is to completely ignore the rules and create his own rules. Rules that would only advance the economic interest of the US, which may not maintain the integrity and ethos of free and fair global trade. This form of trade policy is one where we will see that the US will use economic pressure to its whims and fancy.

Many cases have proved the WTO’s worth in regulating global trade so that there is an equal opportunity available to all member states. Developing countries and countries of the Global South should make it a priority to save the WTO. In particular, the Caribbean Small Vulnerable Economies (SVEs) should focus on the future of the WTO against the backdrop of POTUS’ withdrawal threat. The US remains the Caribbean’s largest trading partner for both imports and exports.  So, what would a US withdrawal mean for these Member States? An appropriate question considering US-Antigua Gambling Case. Antigua is yet to be compensated and the possibility of the US complying with the WTO’s ruling is unpromising. With the US’ pronounced economic influence on the region, its withdrawal would further subject the Caribbean SVE’s to the US “beggar-thy-neighbour” trade policy.

It would be unfortunate for all if the actions of one President collapse a just and fair trading system.

Javier Spencer, B.Sc., M.Sc., is an International Business & Trade Professional with a B.Sc. in International Business and a M.Sc. in International Trade Policy. His professional interests include Regional Integration, International Business, Global Diplomacy and International Trade & Development. He may be contacted at javier.spencer at gmail.com.

Why the proposed US fee on remittance outflows to LAC makes no sense

Photo credit: Pixabay

Alicia Nicholls

The cost of sending remittances from the US to some Latin American and Caribbean countries and dependencies will increase should HR 1813 introduced in the United States (US) House of Representatives on March 30, 2017, be passed. The proposed Bill entitled the “Border Wall Funding Act of 2017”, would amend the Electronic Fund Transfer Act by imposing a two percent fee on the US dollar value of remittances (before any remittance transfer fees) on the countries listed. The bill is sponsored by Representative Mike Rogers, a Republican from Alabama’s third district.

One of President Donald Trump’s most controversial campaign promises was to build a wall along the US’ southern border, which he claimed would be paid for by the Government of Mexico, to deter illegal immigration. The Government of Mexico has consistently and strongly denied that its taxpayers would be paying for the wall. As a result Republican lawmakers have been seeking ways to fund the wall without relying on the US taxpayer. Instead, should this bill become law, it will raise money for the wall on the backs of hardworking Caribbean and Latin American immigrants living in the US, some of which are actually US citizens.

Here are some few reasons why I, respectfully, believe the proposed fee makes no sense:

  1. The wall will still be paid for by some US taxpayers

The two percent fee is to be imposed on the sender of any remittances sent to recipients in the countries identified. Ironically, it would still be funded by some US taxpayers as some remittance senders are either US-born or have acquired US citizenship or have greencard status. Data from the 2015 American Community Survey show that there are an estimated 4 million Caribbean-born immigrants living in the US. Some 58.4% of those became naturalised US citizens, while 41.6% are not yet US citizens according to US Census Bureau 2016 data.

2. The list of ‘foreign countries’ excludes some of the largest sources of illegal immigrants to the US

The affected  countries would be: Mexico, Guatemala, Belize, Cuba, the Cayman Islands, Haiti, the Dominican Republic, the Bahamas, Turks and Caicos, Jamaica, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Aruba, Curacao, the British Virgin Islands, Anguilla, Antigua and Barbuda, Saint Kitts and Nevis, Montserrat, Guadeloupe, Dominica, Martinique, Saint Lucia, Saint Vincent and the Grenadines, Barbados, Grenada, Guyana, Suriname, French Guiana, Ecuador, Peru, Brazil, Bolivia, Chile, Paraguay, Uruguay, and Argentina.

This arbitrarily drawn up list raises two main questions. (1) Why were Caribbean countries included in this list? The Caribbean sub-region as a whole only accounts for 2% of the illegal immigrant population in the US, according to Migration Policy Institute analyses. (2) Why were only countries from the Americas targeted when several Asian countries, like China for example, rank among the top sources of illegal immigrants to the US?

3. It is unlikely to raise enough money to pay for the border wall

It is unlikely that the two percent fee will raise enough money to pay for a wall which is estimated by a leaked memo from the US Department of Homeland Security to cost some 21.6 billion dollars, particularly if the monies will be raised mainly on the back of remittances sent to small Central American and Caribbean countries. Moreover, despite the threat of penalties, people will inevitably find ways to evade the fee by increasing their use of informal channels for sending remittances.

4. It could destabilise the US’ backyard which is contrary to US strategic homeland security interests.

With many of the region’s economies already threatened by de-risking, elevated debt levels and high unemployment, this proposed Bill is another worrying development. Although I do not believe the fee will stop the US-based Caribbean diaspora from remitting money to their loved ones, it may make it more difficult for them to do so as frequently as they normally do, which could have social and economic implications for the most remittance-dependent economies.

The Caribbean diaspora community in the US is an important source of remittance flows to the Region. According to a World Bank Migration and Development Brief released this month, stronger US job growth and a stronger US dollar were major reasons why the LAC Region was the only region to register an increase (6.9 percent) in remittance flows, with a total of $73 billion inflows in 2016. This is in contrast to the global landscape where remittances to developing countries in 2016 declined for the second consecutive year in a row.

Haiti and Honduras are the two most remittance dependent countries in the LAC Region and rank among the most remittance-dependent economies in the world, among countries for which data are available. Data provided in the previously mentioned World Bank Report show that in 2016 remittance inflows were equivalent to 27.8% of GDP for Haiti, 18.4% of GDP for Honduras, 17.6% of GDP for Jamaica, 17.2% of GDP for El Salvador,  and 8.6% of GDP for Guyana. For Belize it was 5% and Dominica, 4.6% of GDP.

A 2010 Report released by the Bank of Jamaica entitled “Remittances to Jamaica: Findings from a National Survey of Remittance Recipients” revealed that “more than half of the remittances sent back to Jamaica come from the US” and found that “remittances are an essential source of financing to many Jamaican recipients, which is used to supplement household income for necessities such as food, utilities and education”.

Successive US administrations have generally recognised that an economically and socially stable Caribbean region was in the US’ strategic homeland security interests. This is why the US government through its various economic and military aid programmes has poured millions of dollars into assisting Caribbean countries on issues such as crime, border security, among other things.

Besides the hardship that could be caused at the micro-level, a reduction in remittance inflows due to higher costs could have poverty alleviation and crime reduction implications and could have a destabilising effect on those economies and societies which are the most dependent on them. The same Bank of Jamaica report noted that “remittances to Jamaica have become an important source of foreign exchange and balance of payments support”.

Due to the paucity of official remittance data for many Caribbean countries, the importance of remittances to LAC economies is still underestimated and its micro and macro-economic importance to Caribbean economies is likely higher than currently measured.

How should we respond?

The bill has been referred to the House Subcommittee on Crime, Terrorism, Homeland Security and Investigations on April 21, 2017 and will need to be debated and passed by both chambers of Congress before being sent to the President for signature into law.

Latin American and Caribbean governments, along with their diplomatic representatives and the diaspora, should lobby against the passage of this bill by engaging in discussions with Congressional and other officials on the serious economic and social impact any potentially significant decline in remittance inflows could have on remittance-dependent countries in the Region, and the spin-off negative effect this could have on the US homeland.

To view the text of the proposed Bill, please see here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Will US Financial Deregulation help mitigate the de-risking phenomenon?

Alicia Nicholls

The exigencies of complying with a complex and often confusing maze of overlapping regulations, coupled with steep fines for compliance breaches, have been identified as principle drivers for United States-based global banks’ restriction and termination of correspondent banking relationships with respondent banks in other jurisdictions. As part of his promise to “Make America Great Again”, US President Donald Trump has pledged to cut the regulatory noose argued to be strangling US enterprise and growth. Will this deregulatory push have the unintended spin-off of mitigating the de-risking phenomenon facing several countries around the world, including Caribbean States?

President Trump has been adamant that ‘burdensome’ regulations passed during the Obama administration to avert a repeat of the Global Economic and Financial Crisis of 2008, have been fetters on US business activity and prosperity. While most available data point to the contrary, the Trump Administration and Corporate America posit that Obama-era regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) have reduced bank profitability and risk appetite, culminating in dampened bank lending to consumers and businesses.

President Trump has so far signed two executive actions on financial deregulation. The latter, an executive order dated February 3, 2017, sets out seven core principles for regulating the US Financial System. It mandates Treasury Secretary, Steve Mnuchin, to consult with the heads of the member agencies of the Financial Stability Oversight Committee (FSOC) and to submit to the President within 120 days a review of “laws, treaties, regulations, guidance” inter alia, which among other things inhibit regulation in sync with the Core Principles. There has been reportedly a shift towards more ‘pro-business’ regulators. Perhaps most telling, in contrast to his anti-Wall Street rhetoric during the campaign, President Trump has picked several former bankers (notably Goldman Sachs) for key cabinet and administration positions, including for Treasury Secretary.

Stringent compliance burdens and costs, as well as uncertainty about the interpretation of the regulations, are major drivers for banks’ avoiding, rather than managing risks. Will an unintended consequence of financial deregulation in the US be a mitigation of the de-risking phenomenon? While at first blush this conclusion may appear tempting, I respectfully submit that this may be an overly optimistic view, at least at this early stage, for the reasons which I outline below.

Firstly, the Trump Administration has set its cross-hairs firmly on the Dodd Frank Act which President Trump termed a “disaster”. This Act, which is hundreds of pages long, was passed in the aftermath of the Great Recession. It includes, for instance, rules against predatory lending, sets measures to deal with banks which become “too big to fail”, prohibits proprietary trading by banks for their own profit (Volcker Rule), inter alia. While Dodd Frank is not perfect and has been blamed for contributing to de-risking, repealing it would not only create an environment for a resumption of the pre-crisis risky behaviours by banks and other financial institutions. It would set the stage for a repeat of 2008, in much the same way that deregulation during the 1990s to early 2000s, including changes to the (now repealed) Glass-Steagall Act, laid the groundwork for the Great Recession, almost a repeat of the Great Depression of the 1930s.

Secondly, Dodd-Frank is just one aspect of the de-risking problem. There appears to be no indication that the Trump Administration intends to tackle the constellation of other regulations, including international anti-money laundering, countering the financing of terrorism (AML/CFT), tax and banking regulations (Basel III), with which banks, including in the US, must comply.

In the World Bank’s seminal 2015 global survey on the Withdrawal from Correspondent Banking, some 95% of large banks had cited “concerns about money-laundering/terrorism financing risks” as a driver for withdrawing from correspondent banking relationships. However, it is unlikely that the Trump Administration will try to rollback AML/CFT rules. President Trump’s ‘America First’ ethos has a strong national security undertone. Weakening the US’ AML/CFT rules would likely make him appear ‘soft’ on money laundering and countering the financing of terrorism. International pressure is also a factor as the US’ last Financial Action Task Force (FATF) Mutual Evaluation Report (2016) highlighted some AML/CFT weaknesses, including gaps in timely access to beneficial ownership information.

Thirdly, replacing existing regulators with so-called pro-business regulators does not necessarily mean that there will be a more lenient approach to fines imposed on banks for compliance breaches. Unlike popular belief, most of the large banks which have been made to pay record fines had indeed knowingly committed serious AML/CFT breaches.

Fourthly, even if financial deregulation in the US eases the regulatory pressure on US global banks, it does not affect two core problems which appear to be driving the de-risking of regional banks, namely the perceived unprofitability of providing correspondent banking services to indigenous Caribbean banks, and the Caribbean region’s unjustified characterisation as a ‘high risk’ region for conducting financial services. In the previously mentioned World Bank 2015 Survey, some 80% of large banks cited “lack of profitability of certain foreign CBR services/products” as a driver of exiting correspondent banking relationships.

Further to the latter point, Caribbean countries, particularly international financial centres (IFCs) are consistently and unjustifiably placed on US government lists deeming them as money laundering threats, despite the fact that no Caribbean IFC is currently on any CFATF list of ‘high-risk and non-cooperative jurisdictions’. The most notorious example of this unfair practice is the US’ annual International Narcotics Control Strategy Report, the latest edition of which listed 21 Caribbean jurisdictions without providing (as usual) any evidence to support the conclusions drawn.

Caribbean countries are consistently branded as tax havens in spite of the fact that all Caribbean countries have signed intergovernmental agreements (IGAs) with the US Government pursuant to the extra-territorially applied US Foreign Account Tax Compliance Act (FATCA) passed in 2010. Most Caribbean governments have already passed implementing legislation to bring their IGAs into force. In addition, while the US has opted not to be a part of the OECD’s Common Reporting Standard, several Caribbean countries have elected to be early adopters!

Added to this is that compliance officers in overseas banks usually view the Caribbean as a “collective” and not as individual countries; any perceived risks in one country are transposed to the Region as a whole.

Granted, it is still early days of the Trump Administration and the findings of the Treasury Secretary’s report on which regulations may possibly be earmarked for axing would not be known for some time. What does help, however, is where there is clarification of the rules through clearer guidance. For instance, for a long time it was unclear how far banks’ due diligence requirements were to go. In addition to knowing their customer (KYC), there appeared to be a growing consensus that banks were also supposed to know their customer’s customers (KYCC).  Definitive guidance through the FATF Guidance in October 2016 showed that KYCC was not required. Turning to the US, that same month the US Office of the Comptroller of the Currency (OCC) released guidance to assist banks in the periodic risk reevaluation of foreign correspondent banking relationships.

However, the Region would be well-advised not to expect any serious mitigation of the de-risking phenomenon stemming from US financial deregulation. Despite being a ‘pro-business’ administration, it should be remembered that the overriding goal of the Trump Administration’s regulatory rollback is to “Make America Great Again”, point blank. Any spill-over positive benefits to the Caribbean from Trumpian financial deregulation would be welcomed but unintended, and it is more likely that the regulatory rollback may perhaps be more harmful than helpful to the region.

There is no panacea for the de-risking phenomenon as it is caused by a multiplicity of factors. Regional governments and private sector stakeholders should continue their lobbying and advocacy efforts, including engagement with key US administration officials, regulators and the banking sector. Given the Trump Administration’s ‘America First’ disposition, lobbying efforts which emphasises the implications that possible derisking-related economic and social destabilisation in the Caribbean may have on the US’ homeland security would be more impactful than pure moral suasion.

These advocacy efforts should also highlight to US officials and to US correspondent banks Caribbean countries’ own efforts at continuously improving their AML/CFT frameworks and the compliance efforts of Caribbean banks. Regional banking stakeholders should also continue to explore the possibility of investing in technologies such as Know Your Customer (KYC) utilities and legal entity identifiers (LEIs) to assist in customer due diligence (CDD) information sharing between themselves and their US correspondents.

These were part of the remarks I gave as a panellist at the Barbados International Business Association (BIBA) International Business Forum 2017

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Trump’s Trade Executive Orders target deficit and uncollected AD/CV Duties

Alicia Nicholls

United States (US) President Donald Trump has sent a warning signal to those countries which he accuses of engaging in ‘unfair trading practices’ argued to be costing American manufacturing jobs. Proclaiming that the “theft of American prosperity will end,” the President concluded the work week by signing two trade-focussed executive orders aimed respectively at identifying the causes of the US’ reported $500 billion dollar total trade deficit and the $2.3 billion dollars (as at May 2015) in uncollected anti-dumping and countervailing duties owed to the US government. Ultimately, the twinned measures are to “set the stage for the revival of US manufacturing” as noted in the President’s remarks at the signing ceremony.

Presidential Executive Order Regarding the Omnibus Report on Significant Trade Deficits

Taking aim at the US’ trade deficit  blamed for a decline in American prosperity and jobs, President’s Trump executive order mandates the Secretary of Commerce, Wilbur Ross, and the United States Trade Representative (USTR), Robert Lighthizer (yet to be confirmed) to prepare and submit to him an Omnibus Report on Significant Trade Deficits. This is to be done in consultation with relevant departments and agencies. The Secretary of Commerce and the USTR may hold public meetings and receive comments from relevant government and non-governmental stakeholders.

Primarily, this report is to examine the US’ trading relationships country by country. It will identify those foreign trading partners with which the US had a significant trade deficit in goods in 2016, and seek to ascertain the reasons for the deficits, including whether it is because of trade abuses (or what President Trump has termed “cheating”) by these countries, assess the effects of the trade relationship on US employment and wage growth and identify imports and trade practices that may be impairing US national security.

Most Caribbean countries can perhaps breathe a sigh of relief as the US has a trade surplus with the Region, as at the last report on the operation of the CBERA. The exception is the oil-rich Trinidad & Tobago which enjoys a merchandise trade surplus with the United States. According to US Census Bureau data, in 2016, the US imported $2,961 million in goods from the twin-island republic and exported $2,334 million, resulting in a deficit of $617 million. Natural gas, crude oil and petrochemicals comprise the majority of US imports from Trinidad & Tobago as this table shows.

While it may appear that Trinidad & Tobago might potentially be in the Administration’s cross-hairs as it has a trade surplus with the US, it should be noted that (a) the US’ deficit with Trinidad & Tobago in 2016 was not ‘significant’ and has been declining since 2011 (b) the Report is supposed to consider other factors as well, including whether the country engages in ‘unfair trading practices’ which Trinidad & Tobago does not. (c) As the Trump Administration will seek to increase US onshore petroleum production, its imports from Trinidad & Tobago (and its deficit with that country) will continue to decrease.

Presidential Executive Order on Establishing Enhanced Collection and Enforcement of Anti-dumping and Countervailing Duties and Violations of Trade and Customs Laws

In a warning salvo to China, President Trump’s second executive order targets US importers which evade anti-dumping/countervailing duties by improving collection of these duties at the border. Dumping in the trade context refers to where an exporter sells a product in an export market at a price lower than in the home market. Under the WTO’s Anti-dumping Agreement, a country may, after investigation, impose extra duties (anti-dumping duties) on a “dumped” product from another country to ensure the price is close to the “normal value” or to offset injury to its domestic industry.

Specifically, the executive order mandates the Secretary of Homeland Security, through the Commissioner of Customs & Border Patrol (CBP), to “develop and implement a strategy and plan for combating violations of US trade and customs laws for goods and for enabling interdiction and disposal”.

The order also seeks to ensure the timely and efficient enforcement of laws protecting intellectual property rights holders from the importation of counterfeit goods. It therefore requires the Treasury Secretary and the Secretary of Homeland Secretary to take all appropriate steps to ensure that the CBP can share any information with rights holders which is necessary to determine whether there has been an IPR infringement or violation, and regarding merchandise voluntarily abandoned, once such information is shared consistent with the law.

Memo on NAFTA

In other news, last week a leaked draft memo to Congress signed by the Acting USTR revealed what appeared to be the Administration’s orientation towards the renegotiation of the North American Free Trade Agreement (NAFTA), an agreement which Trump had called the “worst trade deal ever signed by the US”. However, during a daily press briefing the White House Press Secretary, Sean Spicer, has said the memo is “not a statement of administration policy”.

Trade had been a major plank of President Trump’s platform, which aimed to stop ‘bad trade deals’ and eradicate the US’ trade deficit. One of his earliest executive orders was mandating the Acting USTR to withdraw the US from the Trans-Pacific Partnership (TPP).

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

New Trump Executive Order Reverses Obama-Era Climate Change Policies

Alicia Nicholls

Less than one hundred days into his presidency, President Donald Trump has started a major rollback of Obama-era climate policies. Surrounded by an ensemble of coal miners, the US President today signed his Executive Order on Promoting Energy Independence and Economic Growth.  Touted as necessary to liberalise energy production, promote economic growth and job creation, the Trump Executive Order takes aim at several executive actions implemented by his predecessor, President Barack Obama, as part of the US’ then response to the global climate change challenge.

For fellow pro-environmentalists today’s executive order is a blow to the global climate change fight and a sad confirmation of the policy change which Trump had promised. Why? Firstly, the US is the world’s largest emitter of greenhouse gases (16% according to 2015 figures), which means US action or inaction on climate change has a non-negligible impact on global efforts to reverse course before it is too late. Secondly, environmental regulatory rollback by the US could provoke a domino effect on other large emitters who may decide to rollback their own so-called ‘job killing’ environmental regulations in order to be competitive. Thirdly, US climate change inaction is not just a blow for small island developing States which are the most vulnerable to the adverse effects of climate change, but it further endangers those parts of the US which are feeling the ravages of climate change, such as sea level rise and more powerful storms.

The name  of the executive order is a misnomer as it does nothing to promote energy independence. Instead, it mandates, inter alia, departments and agencies to immediately review, suspend, revise or rescind existing regulations that “potentially burden the development or use of domestically produced energy resources”. It rescinds Certain Energy and Climate-Related Presidential and Regulatory Actions, including a 2013 executive order urging the federal government to prepare for the impact of climate change and a 2013 presidential memorandum on Carbon Sector Carbon Pollution Standards. It also lifts moratoria on Federal land coal leasing activities. His Head of the Environmental Protection Agency (EPA), Scott Pruitt, a known climate sceptic, reportedly hailed the regulatory rollback as “pro-jobs and pro-environment”.

This 360 degree reversal of US Climate Change policy comes days after President Trump’s proposed Budget which slashed budgetary funding for the EPA by 31%, but saw an increase in military spending.

Though denounced by environmentalists, the executive order has been praised by the US Coal Industry. Mr. Trump constantly blamed President Obama’s Clean Power Plan for the loss of coal mining jobs. However, though it is true that coal mining jobs have been on the decline in the US, most have been lost to automation as well as the shift to cleaner energy sources as opposed to clean energy regulations. Therefore, even some coal industry leaders, who have denounced climate action, have noted that coal jobs may not be coming back, regulatory rollback or not.

Moreover, the equation of climate change regulation with job losses is a false comparison as it ignores the growth not just in renewable energy industries and the green economy, but also specifically of green jobs and green goods and services.

President Trump is currently the only major world leader to deny the anthropogenic origin of climate change, and while he has often vacillated in his views on other subjects, on climate change he has been a consistent denier. Almost as a warning salvo that it would not be business as usual,  the Whitehouse.gov site had been scrubbed of any information relating to climate change immediately after President Trump’s inauguration.

Mr. Trump was also a fierce critic of the Paris Climate Agreement which had been concluded and signed by over 190 countries at the UNFCCC’s 21st Conference of the Parties (COP 21). Parties to the Agreement, which the US had ratified under President Obama via executive action, pledged, inter alia, to “holding the increase in the global average temperature to well below 2 °C above pre-industrial levels.”

In the absence of being able to withdraw from the Paris Agreement (which the US cannot do until 4 years after ratifying), President Trump has, as expected, chosen to ignore and reverse emission reduction commitments made by his predecessor. It is also expected that under President Trump the US will renege on the pledge made by developed countries to mobilise $100 billion in climate finance per year by 2020 to assist developing countries with their climate change mitigation and adaptation efforts.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Trump Trade Policy ‘Achievements’: The First Month

Alicia Nicholls

February 20th marked United States (US) President Donald Trump’s first full month in the Oval Office. And what a month it has been! We have seen a lot of focus by his administration on immigration. But what about trade? Trade occupied a major part of the platform of then US presidential candidate Trump. In his Contract with the American Voter , he had enumerated several trade-related pledges as part of his 100-day action plan to “Make America Great Again”. His first one hundred days are not yet up, but it is worth looking at what have been the achievements towards his “America first” trade policy during his first month in office.

President Trump’s Trade Promises

As a reminder, these were the major trade-related promises gleaned from his Contract with the American Voter. He pledged to:

  • Announce his intention to renegotiate the North American Free Trade Agreement (NAFTA) or withdraw from the deal under Article 2205;
  • Announce the US’ withdrawal from the Trans-Pacific Partnership;
  • Direct the Secretary of the Treasury to label China a currency manipulator;
  • Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately;
  • Work with Congress to introduce the “End Offshoring Act” to establish tariffs to discourage US companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free.

Three main reasons possibly explain Mr. Trump’s slow progress on his trade agenda thus far. Firstly, two key members of his trade team  who are needed to help effect his policies are still awaiting Senate confirmation, namely his United States Trade Representative (USTR) pick, noted trade lawyer and former deputy USTR under President Ronald Reagan, Robert Lighthizer, and his commerce secretary nominee, Wilbur Ross, an investor and former banker.

Secondly and related to the first point,Mr. Trump’s policy inexperience means he will likely be more reliant on the guidance and advice of his yet-to-be confirmed trade team than would other presidents. Thirdly, it is possible that Mr. Trump is realising that there is a wide chasm between presidential campaign rhetoric and how Washington and the role of president actually work, particularly when contrasted with being a CEO of one’s own company.

What has he achieved so far and what hasn’t he?

With that in mind, it is not surprising that of his stated promises, his only substantive trade policy achievement thus far has been directing the USTR via a presidential memorandum to withdraw the US from the Trans-Pacific Partnership (TPP). Withdrawal from the TPP was a low-hanging fruit. The US had signed but not yet ratified the Agreement and there was almost bi-partisan criticism of the deal. The acting USTR has since followed up on this memorandum, submitting a withdrawal letter to the TPP depository and TPP partners, and indicating their interest in bilateral trade deals with former TPP partners with which the US does not currently have a trade agreement.

Further to the latter point, President Trump and his soon-to-be confirmed trade team have been consistent so far on their preference for bilateralism over multilateralism. Trade was one of the hot button topics at his initial meetings with United Kingdom (UK) Prime Minister Theresa May,   Japan’s Shinzo Abe and Canadian Prime Minister, Justin Trudeau.

In keeping with his campaign promise that post-Brexit UK would not be at the back of queue for a trade deal, Mr. Trump received Prime Minister May as his first foreign head of government. The two have reportedly agreed to establish working groups in regards to a possible post-Brexit US-UK trade deal. Indeed, the UK House of Common’s International Trade Committee has already launched an inquiry on this.  However, formal negotiations on any such deal can only legally begin once the UK concludes its withdrawal agreement with the European Union (EU) pursuant to Article 50 of the Lisbon Treaty.

More immediately possible, however, may be trade talks between Japan and the US. Despite Mr. Trump’s earlier criticism of former TPP partner Japan’s “unfair trade practices”, the meeting with Mr. Abe went cordially, with agreement in principle for beginning US-Japan trade and investment talks. It should be noted that Japan has a large trade surplus with the US, boosted particularly by automobile exports, which might be a bone of contention in any trade talks between the two countries.

Outside of withdrawing from the TPP and these preliminary aspirational trade talks, there has been limited progress so far on his specific campaign promise in comparison to the ambitious agenda he proposed. So far he has not labelled China a “currency manipulator”. Indeed, the International Monetary Fund (IMF) had indicated that China’s currency was no longer below value. Nonetheless, Trump’s Secretary of the Treasury, Steve Mnuchin, hesitated in a recent CNBC interview to “pass judgment” on China’s currency practices, stating his preference to go through the US Treasury’s established process on judging whether China (and other countries) was manipulating its currency to boost exports.

Additionally, President has not yet triggered the 90-day notice period by informing Congress of his intention to renegotiate NAFTA, which he had promised to do “immediately”. While Mr. Trump has criticised the shift of US jobs to Mexico and the US’ large merchandise trade with that NAFTA partner, it is also not clear on what particular provisions of the agreement he wishes to “tweak”.

What is clear is that Mr. Trump’s main grievance with NAFTA appears to be with Mexico more so than with Canada. Indeed, Mr. Trump took a less protectionist stance towards Canada during his meeting with Prime Minister Trudeau, speaking collectively of keeping jobs and wealth within North America (US and Canada) and not just the US. While reporting on his meeting with Canada’s Prime Trudeau indicates that he would be looking for greater access by American firms to Canadian procurement markets, it is unclear when the NAFTA renegotiation talks will begin.

With respect to the promise to direct the USTR to identify countries engaging in “unfair trade practices”, his USTR nominee is still awaiting confirming. However, it has been longstanding US policy to challenge nations whose actions are against US economic and trading interests, as evidenced by the large number of disputes brought by the US before the WTO’s dispute settlement body.  Therefore, President Trump will not be doing anything more than what previous US administrations have done in this regard, although we will likely see an even more aggressive stance towards China’s trade practices.

Mr. Trump has spoken frequently against US companies which offshore production processes (and therefore jobs), as evidenced by his deal with air conditioner maker Carrier. He has promised to, but has not yet proposed, legislation to impose a punitive tax on US companies seeking to offshore may receive stiff opposition from the business community and from Congress.

He has, however, vacillated in his views on the controversial Border  Adjustment  Tax (BAT) proposal being pushed by Congressional Republicans as part of their tax reform plan. Different from Trump’s border tariff proposal, the GOP BAT Proposal seeks to convert the US corporate income tax from an origin-based to a destination-based tax. It would prevent companies from deducting the costs of their imported goods as an expense, while giving a tax break to companies which export. However, while some business leaders have praised the idea, some economists have argued that it will not boost US exports.

What next?

Besides the questions surrounding the renegotiation of NAFTA and which other nations the Administration will earmark for future bilateral deals, it is unclear what will be the Trump administration’s stance on other existing trade agreements, and on the on-going negotiations, including the Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU and on the plurilateral negotiations such as the Trade in Services Agreement (TISA). There is also need for clarity on the Administration’s position on key multilateral trade issues, bearing in mind the WTO’s upcoming 11th Ministerial Conference in Buenos Aires at the end of this year.  Nonetheless, it is early days yet and it is hoped there will be greater policy clarity before the one hundred days have elapsed.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

« Older Entries