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Accelerating Gender Mainstreaming in CARICOM Trade Policy

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Dr. Jan Yves Remy and Alicia Nicholls

While we can all agree that trade offers the potential for inclusive and sustainable growth in small Caribbean states, deployment of a successful trade strategy requires recognition and ultimately monitoring of its differentiated impacts on women and men. Despite immense strides made in empowering women, they remain under-represented in global trade and are disproportionately affected by international competition and technological changes.

On the occasion of International Women’s Day 2019, we highlight the link between trade and gender and make the case that accelerating gender mainstreaming in trade policies of CARICOM Member States promotes not just gender equality, but inclusive growth as well.

Gender Equality and Development Nexus

Under the United Nations Sustainable Development Goal 5, the international community has committed to achieving gender equality and empowering all women and girls by 2030. Not only is enhancing women’s equality and economic empowerment a human right, but the removal of legal and other barriers to women’s economic inclusion has a multiplier effect in the economy due to women’s dual role as caregivers and economic actors. World Bank research has found that women invest up to 90% of their income in their families, with positive spill-overs for their communities and the economy. A recent Mckinsey Global Institute Report found that advancing women’s equality could add $12 trillion to global GDP by 2025.

Despite this compelling data, and although they account for half of the world’s working age population, women remain under-represented in international trade on account of their unequal access to factors of production and inbuilt gender biases. A recently released World Bank Report entitled “Women Business and the Law 2019” found that out of 187 countries globally, women had equal legal rights to men in only 6.

Gender and Trade Nexus

Trade policies are not necessarily gender neutral: they impact women and men differently at both the country and sectoral levels. Recognizing this, a policy of “gender mainstreaming” aims to promote gender equality by integrating gender considerations in the preparation, design, implementation and monitoring of policies.

Trade creates opportunities for women’s empowerment by creating both employment and business opportunities, but it can also alienate them. For example, while e-commerce can improve women’s access to foreign markets, increased competition through trade liberalisation can displace and marginalize women in agriculture. Because they are both caregivers and economic actors, women often have less time on average than men to engage in entrepreneurial and exporting activities. At the same time, their access to market information is often lower due to fewer networks and lower education levels. Knowing this, ex ante gender-based analysis can assist policymakers to avoid negative gender impacts of policies that they implement.

A number of international institutions have developed programmes to increase women’s inclusion in trade. For instance, the International Trade Centre (ITC) has created a She Trades electronic platform; and the World Trade Organization (WTO), at its Buenos Aires Ministerial Conference in 2017, adopted a Joint Declaration on Trade and Women’s Economic Empowerment. Regionally, the Caribbean Export Development Agency’s Women Empowered Through Export (We-Xport) initiative supports Caribbean businesswomen looking to export for the first time or to increase their goods and services exports.

But there is still lots to do in CARICOM. Despite the fact that CARICOM Member States are signatory to a plethora of international treaties aimed at the empowerment of women, their trade policies are to a large extent being enacted and maintained in the absence of evidence and data that is timely, comparable and sex-disaggregated. Mainstreaming gender into CARICOM countries’ trade and development policy-making would help to ensure that initiatives under the CARICOM Single Market and Economy (CSME) and CARICOM’s trade negotiations with third parties are gender-sensitive. It is, therefore, a welcome development that Belize’s recently launched National Trade Policy (2019-2030) incorporates gender equality as a cross-cutting issue. Another praiseworthy development is that in February 2019, it was announced that national consultations were underway on a draft CARICOM Regional Gender Equality Strategy to advance gender equality and equity and the empowerment of women and girls in each of the fifteen CARICOM Member States.

How can CARICOM Member States promote Gender Mainstreaming in Trade?

Based on the above, we recommend the following ways in which CARICOM’s trade policies may be more gender-sensitive:

  • Mainstreaming gender in the design and implementation of National Trade Policies. Belize’s new National Trade Policy can serve as a good model;
  • Gender sensitivity training of key technocrats charged with formulating, implementing and monitoring trade and economic policies and their gendered impact. Gender-based policy making and monitoring will require greater resource allocation to the agencies charged with gender affairs;
  • Enlisting the assistance of civil society and the private sector in designing trade policies and measuring their impact;
  • Increasing specific programmes in Member States’ aimed a promoting women’s entrepreneurship and export activities through capacity-building, improving their access to finance and to trade information;
  • Promoting greater inclusion of gender provisions in CARICOM’s free trade agreements (FTAs). The most far-reaching of these FTAs like the Canada-Chile and Chile-Uruguay FTAs, contain dedicated trade and gender chapters. CARICOM’s trade agreements, however, are generally sparse on gender provisions;
  • Continued lobbying of regional policy makers to honour the commitments they have made both regionally and internationally to promote gender equality, particularly their reporting and gender mainstreaming commitments.

International Aid for Trade programming is becoming increasingly gender-focused. With foreign donors increasingly making gender an important plank of their aid strategies, CARICOM governments seeking development assistance are increasingly under pressure to include gender considerations. However, gender mainstreaming is not just about ensuring CARICOM Member States meet their international treaty obligations or increase their access donor to funding. When properly implemented, gender-sensitive trade policies promote women’s empowerment, eradicate poverty and foster inclusive growth.

Dr. Jan Yves Remy is the Deputy Director of the University of the West Indies, Cave Hill’s Shridath Ramphal Centre for International Trade Law, Policy & Services. Alicia Nicholls is an international trade and development consultant and contributing author to the UWI SRC’s Trading Thoughts column.

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

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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.

Global Trade Policy in 2019: What to Watch?

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This article has been updated.

Alicia Nicholls

Happy New Year to all! 2018 was without doubt a nail-biting year for global trade policy developments. In our first blog for the year, we take a look back at some of the key trade policy developments in 2018 and five developments to watch for 2019!

  1. US-China Trade Tensions and Truce?

Starting with the scary; 2018 saw an escalation in global trade tensions among major trading powers. Without doubt, the election of President Donald Trump in the US in 2016 has led to a more nationalistic, protectionist and unilateral turn in US trade and foreign policy. Under his ‘America First’ ideology, President Trump issued proclamations hiking tariffs on imported steel and aluminum under the guise of national security, with only a small handful of countries being spared.

Tensions between the US and its other key trading partners, such as Canada and the EU, were inflamed, but China was the main target of US trade action. According to the BBC, the US has imposed tariffs on over $250 billion dollars of Chinese goods and had threatened an additional $260 billion, while China has imposed tariffs on $50 billion dollars of US goods and threatened tariffs on an additional $60 billion. Both countries agreed to a truce in December to suspend any further tariff impositions for a 90-day period while talks resume.

Trade talks held between the US and China this week have been hailed as positive by both sides, but the two economic behemoths are still a long way from resolving long-simmering tensions. US President Donald Trump appears confident that China will acquiesce to the US’ demands given the current slowdown in the Chinese economy. However, the US has not escaped the trade tensions unharmed as, for example,  soybean farmers have been affected by the reduced Chinese demand for their produce.

The WTO has warned that the uncertainty around the escalating trade tensions was beginning to adversely impact business and investment confidence, with potential implications for continued global trade growth. Moreover, in its Global Economic Prospects – January 2019 report, ominously titled ‘Darkening Skies’, the World Bank has warned of darkening clouds over the global economy and softening global trade and investment flows.

2. WTO Reform

On the multilateral scene, the crisis in the WTO’s Appellate Body due to the US’ blockage of appointments appears to have given new political will and urgency to the need to reform the WTO, which is facing its greatest existential crisis since its founding in 1995.

The US’ continued blockage of appointments/re-appointments to the organisation’s seven-member Appellate Body has now resulted in only three sitting Appellate Body members – the minimum for the Body to function.

Several WTO members have tabled proposals for reforms on discrete issues, such as transparency/notification, while the European Union (EU) and Canada have both placed more comprehensive reform proposals on the table, including reform of the dispute settlement system.

However, WTO members are still a long way from deciding on how deep and wide-ranging the reform agenda should be. The US, which has for a long time expressed grave reservations about the Appellate Body, has so far not been convinced by any of the proposals tabled.

This year will be critical for deciding on the way forward for WTO reform, especially since the loss of yet another Appellate Body member will result in the Appellate Body being unable to operate, with grave implications for the prompt settlement of disputes and the rules-based multilateral trading system, on a whole.

3. Regional Trade Agreements – AfCTA, USMCA, CPTPP, EU-Japan 

On the regional trade agreement scene, there were several positive and major developments in 2018. One of the most exciting was in March, 2018 when forty-four African states signed the Africa Continental Free Trade Agreement (AfCTA) in Kigali, Rwanda. Since then, five other States have signed the agreement. Thirteen African States have ratified the agreement thus far and further ratifications will be needed before it comes into effect.

President Donald Trump made good on one of his major trade policy promises – the renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico to make it ‘fit for purpose’ for the 21st century. In November 2018, the three countries announced they had agreed an agreement under a new name – the United States, Mexico and Canada (USMCA) Agreement. Some of the major changes include more stringent rules of origin (RoO), extension of terms of copyright protection, a sunset clause and provision for a 6-year review.  The Agreement is awaiting ratification in the three countries.

After the US’ withdrawal from the Trans-Pacific Partnership (TPP) under President Trump, the remaining eleven TPP parties signed a successor agreement termed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018. The Agreement came into effect on December 30, 2018, and its parties account for an estimated 14% of global GDP.

Five years after negotiations began in 2013, the EU and Japan signed the Economic Partnership Agreement and the EU-Japan Strategic Partnership Agreement. The Agreement, which is on track to come in effect in February 2019, is the first free trade agreement to make explicit reference to the Paris Climate Change Agreement which was signed in 2015.

4. Bolsonaro’s Brazil

South America’s largest country, Brazil, elected Jair Bolsonaro who took office as president at the beginning of 2019. Riding the wave of right-wing populism, Mr. Bolsonaro has expressed support for the unilateral foreign policy espoused by his US counterpart and has expressed apathy about Mercosur. Brazil is one of the most influential emerging economies, both hemispherically and internationally. The implications of the South American nation’s shifting foreign and trade policy will, therefore, be key to watch.

5. Brexit Uncertainty

Of course, one of the biggest trade policy developments to watch in 2019 will be the UK’s impending withdrawal from the EU – Brexit – which, as it stands, is to take place on March 29, 2019.

After nearly two years of intense negotiations, the EU-27 and the UK finally arrived at a Draft Agreement on the UK’s Withdrawal from the EU and a Political Declaration Setting out the Framework for the Future Relationship between the EU and the UK in November 2018. The EU-27 leaders endorsed the two texts at a special emergency meeting of the European Council.

However, in the face of strong opposition to the deal, particularly the ‘backstop’ provisions regarding the Northern Ireland/Ireland Border, UK Prime Minister Theresa May cancelled a crucial House of Commons vote on the deal which she likely would have lost. Mrs. May has sought to obtain further binding concessions from the EU, but without success thus far.

This week, the British House of Commons MPs voted in favour of an amendment requiring the Prime Minister to present to Parliament a Brexit Plan B within three days, in the event that MPs reject the current Draft Withdrawal Agreement in their vote rescheduled for next week Tuesday. Meanwhile, Labour Leader Jeremy Corbyn is calling for a general election to break the Brexit deadlock.

The Brexit deadline looms, but the May Government has ruled out requesting an extension under Article 50. With the timeline for the UK’s withdrawal ticking and the real threat of a potentially economically disastrous ‘no-deal’ exit, this will be one of the major trade policy issues to watch in 2019.

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.

Trump Trade Policy ‘Achievements’: The First Month

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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.

Trump Trade Team poised to reset US Trade Policy

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Alicia Nicholls

Just three weeks shy of his inauguration date, United States President-elect Donald Trump has completed his trade team by nominating veteran trade lawyer and negotiator, Robert Lighthizer, as the next United States Trade Representative (USTR). Last month the President-elect had announced Wilbur Ross Jr as his Commerce Secretary nominee and Peter Navarro as head of the new White House Trade Council.

A cabinet-level office, the Office of the USTR is responsible for developing and coordinating US trade and investment policy and overseeing negotiations with third countries. Mr. Lighthizer’s pick comes as no surprise as he was an early Trump supporter. Moreover, a former deputy USTR in the Reagan Administration, Mr. Lighthizer is the most qualified of Mr. Trump’s nominees to date, bringing considerable technical expertise and professional experience to the post of USTR. Currently a partner with law firm Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, he also served as the Chief of Staff of the United States Senate Committee on Finance. Mr. Lighthizer will be taking over from current USTR under President Obama, Michael Froman. One of his first tasks from day one will likely be working on the renegotiation of the North-American Free Trade Agreement (NAFTA) as promised by President-elect Trump in his 100 days proposal.

Mr. Lighthizer’s conservative views on trade, including his criticism of free trade, are in consonance with the President-elect’s binary trade views, as well his hard-line position on China’s so-called currency manipulation. Mr. Lighthizer also had some harsh words for the WTO’s dispute settlement system in regards to dealing with what he had termed China’s “mercantilism”.

His choice of the word “mercantilism” is curious as it can actually be used to describe Mr. Trump’s “America first” stance on trade. Mercantilist theory, prevalent during 16th century Europe and also refined by Alexander Hamilton during the US’ post-independence period, views trade in a zero sum way, that is, only one country can win in trade. It favours the use of protectionist policies, such as tariffs, subsidies and quotas, to protect domestic industries from foreign competition.

Granted lingering traces of protectionist practices are not alien in current US trade policy and all modern “great powers” have used mercantilist policies to develop in their early stages (see the works of Professors Erik Reinert and Ha-Joon Chang for greater information on this). Just consider the protection given to sensitive sectors like agriculture. This is true not just for the US but for most other trading nations as well. However, in the last three decades US trade policy has been guided (if not always in practice, at least in theory) by neoliberal tenets, based on the works of Adam Smith and later David Ricardo, which extolled the benefits of free markets and became the dominant economic theory. However, while trade is a good thing, there are winners and losers, and the “losers” made their voices known this election, and increasingly in other western states.

Capitalising on the populist backlash to free trade, Mr. Trump’s trade team seems poised to break with this three-decade old policy stance towards a more neo-mercantilist disposition, with an emphasis on positive trade balances, and a proclivity for the use of protective and retaliatory tariffs to discourage imports in order to protect American jobs and industries and punish “cheaters”. On this front at least, Mr. Trump has tremendous popular support, especially in the rust belt, at home.

So what can we in the rest of the world expect? We can probably expect greater confrontation by the US with China on trade matters. We can expect even more aggressive US pursuit of countries in general believed to be engaging in “unfair trade practices” (and the USTR has already been doing this through the WTO’s dispute settlement system), However, there might be less emphasis under the Trump administration on utilising the WTO’s rules-based system and a resort to unilateral action, with the possibility of trade wars.

Perhaps, one saving grace is that the US Congress alone has the power to impose tariffs, although this CNN Money article notes there are several pieces of legislation which give the President some flexibility, for example, during “times of war” or during “a national emergency”.

As I have said in previous posts on Trump’s trade policy, President-elect Trump has changed his positions on many things so there is still great uncertainty about which of his policy proposals he will seek to implement. However, if the Carrier deal were not enough to show that Mr. Trump’s “America first” trade policy is more than mere bloviating on his part, his protectionist-leaning trade team confirms his intention  to shake up American trade policy, and not just in optics.

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.

 

President-Elect Trump’s Trade Policy Proposals: A Quick Look

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Alicia Nicholls

Few other aspects of President-elect Donald Trump’s proposed policy platform have attracted as much attention and scrutiny as have his trade policy proposals. In often colourful language, Mr. Trump has charged that current United States (US) trade policy is disadvantageous to American workers and interests and that other countries are taking advantage of the land of the free.

In October before the vote, Mr. Trump outlined his broad trade policy proposals in his first 100 days action plan to “Make America Great Again”. The guiding principle of Mr. Trump’s trade policy is to protect American workers and address the country’s trade deficit. The President-elect has proffered the plan as a contract between himself and the American voter. Many of these proposals he had previously outlined in his Trade Policy speech on June 28, 2016.

Here are the broad policy guidelines of President-elect’s Trump trade policy according to his first 100-days plan in a nutshell:

1.Renegotiate or Withdraw from NAFTA

Mr. Trump has called the trilateral North American Free Trade Agreement (NAFTA), consisting of the US, Canada and Mexico “the single worst trade deal in history”. He has vowed to renegotiate it to make it better.

Truth be told, NAFTA has been controversial from its inception. The Agreement was negotiated and signed under Republican president, George H.W. Bush, in 1992, but the task of pushing for congressional approval and signing it into US law was left to his successor, Democratic president, Bill Clinton in 1993. In 1992, even before the agreement came into effect, then independent presidential candidate Ross Perot made his famous “giant sucking sound going south” quotation by which he argued that NAFTA would result in the relocation of American companies (hence American jobs) to Mexico where labour is cheaper and there are less environmental and workers’ protections. Back in the 2008 presidential campaign then Senator Obama made a campaign pledge that he would renegotiate NAFTA.

Views on NAFTA remain divided to this day. Besides its criticism as an American job killer, NAFTA’s Chapter 11 (Investment Chapter) has seen all three countries paying out large sums of money in compensation to investors who utilised the investor-state dispute settlement (ISDS) provisions.

But has NAFTA been as bad for the US economy as Mr. Trump claims? A report by the Congressional Research Service in 2015 found it is not so simple:

In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters. The net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because trade with Canada and Mexico accounts for a small percentage of U.S. GDP.

It is not yet clear what aspects of the Agreement Mr. Trump intends to re-negotiate or how he intends to go about this.

Mr. Trump has also floated the option of withdrawing from NAFTA if Mexico and Canada do not agree to renegotiate. Under Article 2205 of the NAFTA Agreement, a State may withdraw from NAFTA six months upon giving written notice of same. It will be uncharted territory as no state has withdrawn from NAFTA before and it would mean that trade between the US and Canada and Mexico, its second and third largest bilateral trading partners (by merchandise trade) would be left in a state of uncertainty. This would be disadvantageous to American businesses which conduct trade with Canada and Mexico.

2. Withdrawal from the Trans-Pacific Partnership

Equating the Trans-Pacific Partnership with “rape” and calling it a “deathblow for American manufacturing“, Mr. Trump has stated that he will withdraw the US from the agreement.

The TPP is a mega free trade agreement involving twelve Pacific Rim countries. The US signed the Agreement in February 2016 but ratification requires Congressional approval which it is yet to receive. After Mr. Trump’s election, President Obama announced he was suspending his efforts to win congressional approval of TPP before Mr. Trump assumes office. A significant amount of popular, political and civil society resistance to TPP has been against the secrecy in which it was negotiated and its ISDS and intellectual property provisions.

Since the TPP has not been ratified by the US, it is probable that President Trump may simply not bother to let it be ratified, which means it will die a natural death as far as the US is concerned.

3. Direct his Secretary of the Treasury to label China a currency manipulator

According to US Census Bureau data as at September 2016,  China is now the US’ largest  bilateral trading partner in terms of the total volume of merchandise trade between the two countries. The US has a large trade deficit with China ($79.3 bn in exports to China versus $337 bn in imports year to date, according to US Census Bureau data), something which Mr. Trump has constantly criticised during the campaign.

Another issue Mr. Trump has raised is “currency manipulation” by China. In a Wall Street Journal op-ed in November 2015, Mr. Trump wrote that “the worst of China’s sins is not its theft of intellectual property. It is the wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs”.

So what is this currency manipulation business? China’s currency exchange rate policy uses a trading band, that is, the exchange rate  of the Renminbi (China’s official currency) is allowed by the People’s Bank of China to appreciate or depreciate only 2% against a basket of currencies, including the US dollar. It is not uncommon for governments to intervene to influence their exchange rates and it is a country’s sovereign right to determine its own exchange rate regime. The only possible WTO guidance on the subject is in the General Agreement on Tariffs and Trade (GATT), namely Article XV(4) which is  quite vague.

The main argument made against China’s exchange rate regime by the US is that the Renminbi’s undervaluation gives China an unfair trade advantage as it makes Chinese exports more price competitive than American goods. Bear in mind that large bilateral trade deficit we discussed earlier. It should be noted that this concern is not unique to Mr.Trump as in the 2012 presidential election, former Massachusetts Governor Mitt Romney, the then Republican nominee, promised to label China a currency manipulator. Criticism of China’s intervention in the currency market by US administrations is not new, including under the Obama Administration.

In highlighting the perceived injustices of China’s actions, Mr. Trump noted in the same op-ed that “[t]hrough manipulation of the yuan, the Chinese government has been able to tip the trade balance in their direction by imposing a de facto tariff on all imported goods.

The President-elect has stated that he would impose a countervailing 45% tariff on Chinese imports because of China’s “currency manipulation. Many commentators have warned that such an action would likely trigger a trade war with the US’ most important bilateral trading partner, to which Mr. Trump promptly quipped that the US was already in a trade war with China.

It should be noted that in its Article IV Report of 2015 the IMF noted that “our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued”, although in the 2016 report it noted “[a]fter appreciating 10 percent in real effective terms through mid-2015, the renminbi has depreciated some 4.5 percent since then and remains broadly in line with fundamentals”.

4.Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses

Mr. Trump has promised that he will direct the Secretary of Commerce and the 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”.

Defending her trade interests against perceived unfair trade practices by other states is an American tradition, including under the Obama administration, and would be nothing new. In the Caribbean we have had an unfortunate taste of this with the banana disputes successfully brought by the US and Latin American countries on behalf of big US banana producers against the European Union over its preferential import regime for bananas from African, Caribbean and Pacific (ACP) countries.

Indeed, if one looks on the WTO’s website, one can see a long list of WTO disputes brought by the US as a complainant against other WTO members. More specifically, 19 of those cases the US has brought against China.

5.Ending Offshoring by establishing tariffs

Mr. Trump has promised to “discourage [American] companies from laying off their workers in order to relocate in other countries and ship their products back to the U.S. tax-free”. To this extent, he has indicated on several occasions his willingness to impose a 35% tariff on goods coming into the US which are produced by American companies which had moved offshore. This promise in particular appealed to blue collar workers in Rust belt states where manufacturing jobs have declined as some American manufacturers have either offshored or outsourced aspects of their production to more cost effective locales, including Mexico and Asian countries.

Critics of Mr. Trump’s plan to place a tariff on those imports argue that the tariff will raise prices for American consumers and negatively impact the working class. Additionally, there appears to be some trend of reshoring, that is, relocation by American manufacturers of plants back to the US, although this Deloitte report notes that it is too early to tell whether this is a permanent trend.

6. Other Trade Statements made on the Campaign Trail

In his 7-point plan on trade, Mr. Trump also promised to “appoint tough and smart trade negotiators to fight on behalf of American workers” to ensure America signs deals which benefits American jobs. It is not clear what criteria will be used to select these negotiators. Mr. Trump also supports the continuation of the US’ long-standing trade and economic embargo against Cuba. Although only Congress can end the embargo, President Obama had through a series of executive orders loosened some of the restrictions since 2014 in hopes of a future normalisation in US-Cuba relations. It is likely that Mr. Trump will reverse those orders.

Some of President-elect Trump’s trade policy proposals such as aggressively defending America’s interests against unfair trading practices and challenging China’s perceived currency manipulation are already mainstream to existing US policy. What is different, however, is his rhetoric against free trade agreements which he views as “job-killing” and his tariff-happy rhetoric. I have already discussed the implications of this for US-Caribbean relations in a previous post.

His zero-sum approach to trade policy has been strongly criticised in many quarters as being protectionist and anti-growth. For instance, an empirical study by the Peterson Institute for International Economics had found that if implemented, Mr. Trump’s trade proposals “could unleash a trade war that would plunge the US economy into recession and cost more than 4 million private sector American jobs”.

If he does decide to implement tariffs on countries deemed to be “unfair”, this is also likely to lead to more WTO trade disputes as countries may decide to take pre-emptive or retaliatory action against US goods in order to protect their own interests. Such an outcome from Mr. Trump’s proposals are particularly concerning in the context where global trade growth is sluggish and there are concerns about creeping protectionism, which has prompted some concern expressed by IMF and WTO officials.

As evidenced by his electoral win, Mr. Trump’s protectionist promises successfully appealed to blue collar workers  in the “Rustbelt” states and is symptomatic of the anti-trade populism which has been sweeping through western countries. However, the implementation of some of his more controversial proposals might not be as simple as one might think. Needless to say, some of these proposals, if implemented, will likely be judicially challenged in the domestic courts by American businesses which are adversely affected, in the WTO dispute settlement system by affected countries. Mr. Trump has hinted that he may withdraw the US from the WTO, when the suggestion was made that some of his proposals might be contrary to WTO rules if implemented.

The specifics of the President-elect’s policy proposals have not yet been elaborated. It is also not yet known who Mr. Trump will pick to lead his trade team. As trade is high on the incoming President’s agenda, one can expect to see more elaboration of his trade proposals in the coming weeks and after he takes office in January 2017.

Alicia Nicholls 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.

Job Opportunity: Trade Policy Adviser (Pacific Islands Forum Secretariat)

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Trade Policy Adviser (Aid for Trade)

Just came across this. The Pacific Islands Forum Secretariat is seeking applications for a trade policy adviser (aid for trade).  If you’re interested, try to apply soon as the deadline is February 10th 2012.

Find more info at this link: http://www.aidboard.com/jobs/view/trade-policy-adviser-aid-for-trade?PHPSESSID=vdsd25rvlfj5cci58cavc4tl45.

Good luck! 🙂