Tag Archives: trade

IMF raises global GDP growth forecast but protectionist policies a threat

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Alicia Nicholls

“The sharp downtown in global trade in recent years is both a symptom of and a contributor to low growth“. – Making Trade an Engine of Growth for All (IMF, WTO, World Bank Report of April 2017)

Protectionism leading to trade warfare is a ‘salient threat’ to global economic growth, warned the International Monetary Fund (IMF) economists, not for the first time, in their recently released World Economic Outlook for April 2017.

The good news is that the Fund’s April outlook was much more upbeat than its January 2017 outlook. According to the Fund, the global economy is projected to expand by 3.5 percent in 2017, a modest increase from its 3.4 percent projection in its January 2017 outlook but greater than the 3.1 percent growth in 2016. The Fund has maintained its outlook for 2018 at 3.6 percent.

The not so good news, as already noted, is that the tenuous economic recovery remains vulnerable to several downside risks, including protectionism. Bear in mind as well that the global economy expanded on average 4.2 percent between 1999-2008, so the projected rate of growth is still below the pre-crisis rates of growth.

The Fund’s most recent WEO report comes on the heels of the release by the World Trade Organisation (WTO) of its trade growth forecast which projected some recovery in global trade growth to 2.4 percent in 2017. Most readers would remember that 2016 saw the slowest rate of global trade growth since the global economic and financial crisis which coincided with the slowest rate of global economic growth in 2016 since 2009.

As noted by the WTO in its press release, “the volume of world merchandise trade has tended to grow about 1.5 times faster than world output, although in the 1990s it grew more than twice as fast.” However, dampened trade volumes have been linked to a subdued global economy and global trade grew less than global economic growth in 2016. Although, the WTO’s projected rate of growth for 2017 signals a cautious recovery, the rate of merchandise trade growth is still much lower than pre-crisis merchandise trade growth and the forecast risk is higher due to both economic and policy uncertainty.

The IMF’s most recent WEO also follows a joint report released by that institution, the WTO and the World Bank entitled “Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment” in which it was stated, inter alia, that the role of trade in the global economy is ‘at a critical juncture’, and arguing that further trade integration was important for stimulating global growth.

At the same time, the IMF warned that protectionism could lead to trade warfare, citing several factors in mainly advanced economies which have seen greater political support for nationalist and protectionist policies. There is good reason for this concern, stemming from protectionist turns and mercantilist rhetoric emanating from political quarters in advanced economies, namely the US and Europe. Moreover, the communique from the March 2017 G-20 Finance Ministers’ Meeting in Germany  saw, for the first time, the exclusion of the pledge to “resist protectionism”. On the multilateral front, although the WTO’s Trade Facilitation Agreement has come into effect, there has been little progress otherwise on multilateral trade negotiations.

Trade is an important driver of global growth, and helped to propel global growth in the latter half of the 20th century. Trade has also played an important role in boosting competition, productivity and improving living standards and productivity. However, there has been dislocation as a result of free trade. In the case of developing countries, there has been the negative impact of competition from cheaper subsidised (particularly agricultural) imports from advanced countries on domestic industries which have higher production costs due to lack of economies of scale and lower technology use. An Oxfam report noted the  negative impact on Mexico’s corn industry following the introduction of the North American Free Trade Agreement (NAFTA).

While the cheaper imports benefit consumers through lower prices, they, however, can negatively impact domestic industries and jobs, and with implications for countries’ balance of trade, and in the case of the agricultural sector, food security. This is an issue which has been noted by developing countries and development economists for years but only seemed to gain mainstream discussion once the effects became more palpable in advanced economies, such as the US and Europe.

However, this is not to suggest that trade is undesirable or that the negatives outweigh the positives. Trade, as the IMF has rightly noted, is an important driver of the global economy. It does, suggest, however, that there needs to be greater consideration of the “social impact” of trade policies and of the need to make trade policies much more inclusive by ensuring that the most vulnerable to the negative fall-outs of trade, such as women and the poor, are protected through supporting policies and mechanisms. As such, domestic policies to assist with, and mitigate, these trade-related adjustments are important, a point made in the joint report by the IMF, WTO and World Bank.

Besides protectionism, the IMF also noted faster than expected interest rate hikes in the US, aggressive financial deregulation, financial tightening in emerging market economies, geopolitical tensions, inter alia, as among the inter-connected downside risks to global growth. Furthermore, the IMF emphasised the importance that countries’ policy choices will have on the global economic outlook and on reducing risks to this outlook.

To read the full IMF WEO April 2017 report, please visit 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.

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

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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.

UK-US Trade Inquiry launched by UK Parliament’s International Trade Committee

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Photo source: Pixabay

Alicia Nicholls

The House of Commons’ International Trade Committee is accepting submissions from interested organisations and individuals pursuant to an inquiry it has launched into UK-US trade relations. According to the official press release on the Committee’s website, the inquiry will:

  • examine the potential for a UK-US trade agreement
  • the opportunities and challenges any agreement might present
  • the implications for the production and sale of goods and services on both sides of the Atlantic
  • make recommendations to the Government on how it should approach trade relations with the US.

The Committee is inviting interested organisations or individuals to submit written evidence to the Committee via the inquiry page in accordance with the guidelines provided. The deadline for written submissions is Monday 27 February 2017.

For further information, please see the official page of the Committee.

 

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.

 

 

TPP: Trump to Withdraw US from Agreement on day one

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Alicia Nicholls

United States (US) President-elect Donald Trump has made clear his intention to honour one of his more popular campaign pledges; withdrawing his country from the Trans-Pacific Partnership (TPP) Agreement. He reiterated this promise in an online video aimed at updating the American people on the progress of his transition and policy plans for the first one hundred days of his presidency which will officially begin on January 20, 2017.

In a video which was silent on his more controversial plans like building a wall Mexico would supposedly pay for or pulling out of the Paris Climate Change Agreement, Mr. Trump stated that on the first day of taking office he would “issue a notification of intent to withdraw” from the 12-member mega-regional trade agreement whose members account for forty (40) percent of global GDP.

Referring to the TPP as “a potential disaster for our country”, the President-elect stated that he would instead “negotiate fair bilateral trade deals that bring jobs and industry back to American shores”, one of the main cornerstones of his Trade Policy. The US has signed the TPP but has not yet ratified it.

The TPP has faced tremendous opposition. Among other things, TPP critics have denounced the negotiations’ secrecy and lack of transparency, the potential impact on access to medicines by the stronger intellectual property rights provisions, and the investor-state dispute settlement provisions which allow investors to sue . However, Mr. Trump’s criticisms of the Agreement have been largely vague centering around the need to bring back American jobs and take back control of the American economy. On the campaign trail Mr. Trump famously called the TPP “a rape of our country“.

While Mr. Trump’s former opponent, former Secretary of State Hillary Clinton, had revoked her support of TPP during her democratic primary fight against Senator Bernie Sanders, current US President Barack Obama has been a staunch supporter of the TPP. The outgoing President recently defended the Agreement at last week’s Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru.

Mr. Trump’s promise to withdraw from the TPP may be music to the ears of TPP critics and workers in US ‘rustbelt’ states but fellow TPP member states are not optimistic. Japanese Prime Minister Shinzo Abe has said the TPP would be “meaningless” without the US. Reuters reports that Peru has proposed talks to save the TPP. It should be noted that none of the countries have ratified the Agreement as yet. With the TPP practically “dead on arrival”, Asian states appear to be already pivoting towards the China-pushed rival deal, the Regional Comprehensive Economic Partnership  (RCEP), and the Free Trade Area of the Asia-Pacific (FTAAP).

In the short video, President-elect Trump also reiterated his promise to cut regulations and increase the production of fossil fuels and pledged to “direct the Department of Labour to investigate all abuses of visa programmes that undercut the American worker”. Mr. Trump has promised in the video to share more updates in upcoming days.

The President-elect’s full video may be viewed here.

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.

Trump Presidency: What priorities for US-Caribbean Economic Engagement?

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Alicia Nicholls

The United States’ position as most Caribbean countries’ largest economic partner and an important foreign policy ally means that constructive engagement with the incoming Trump administration is not just a choice but an imperative. The Caribbean Community (CARICOM) and individual Caribbean governments have all expressed congratulatory messages, emphasizing their willingness to work with Mr. Trump and continuing the harmonious US-Caribbean relationship.

But in contrast to the idealism attending then Senator Barack Obama’s “Yes we can” message eight years ago, a spectre of profound uncertainty shrouds the President-elect not just because of his extreme rhetoric on trade and foreign policy, undergirded by his “Make America Great Again” and “America First” refrains, but also the lack of policy specificity.

In this article, I will outline what I believe are five key priorities which will likely frame US-Caribbean economic and foreign policy engagement for the foreseeable future:

  1. Correspondent Banking/De-Risking

A first order of business will be continuing the conversation that CARICOM governments and stakeholders have started with US officials and regulators on the de-risking activities of US-based international banks, including the withdrawal and restriction of correspondent banking relationships. These relationships are Caribbean’ lifeline to the global financial and trading system, critical for the trade, investment and remittance flows which buoy our small open economies and sustain households.

US foreign policy orientation towards the Caribbean has constantly recognized that an economically secure “third border” complements US’ strategic security interests. Any threat therefore to the region’s economic and financial inclusion is something which should be of mutual concern. Unfortunately, there appears to be limited progress on the correspondent banking issue.

While de-risking is a cost-benefit decision for banks, it is also partly fuelled no doubt by ambiguous regulations and the Caribbean’s undeserved reputation in some quarters as a high risk place for doing business. To their credit, the US Treasury and Federal Banking Agencies released a Joint Factsheet on Foreign Correspondent Banking. Additionally, the US Treasury has reiterated that the de-risking issue is a “key priority”.

However, actions by US authorities which unfairly label Caribbean countries as “tax havens” contribute to the perception that Caribbean jurisdictions and banks are higher risk. In 2015 the state legislature of Montana, and the District of Columbia, had included several Caribbean countries among their proposed lists of tax havens. This is despite Caribbean countries’ having taken steps to ensure their compliance with the Foreign Account Tax Compliance Act (FATCA) and our clean bill of health by the Organisation for Economic Cooperation and Development (OECD).Continued engagement with US states and federal authorities on this issue is a must.

  1. International Financial Services & FATCA

Although President-elect Trump has promised to lower the US federal corporation tax rate from 35% to 15% and  provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%, his orientation towards international financial centres (IFCs) in general is not well-known.

The Obama administration has not been friendly to Caribbean IFCs, and that is putting it mildly. On the other hand, Mr. Trump’s background as a businessman may make him more appreciative of the role IFCs play in making US businesses more efficient and profitable, which in turn facilitates their contribution to US economic and job growth. Moreover, conventional wisdom holds that Republican governments are usually friendlier to the Caribbean than are Democratic governments, and there is good anecdotal evidence to support this.

Additionally, continued engagement with US authorities will be necessary to iron out any implementation and reporting issues under FATCA.

  1. Caribbean Basin Initiative & Other Market Access Issues 

Manufacturers in most Caribbean countries enjoy non-reciprocal duty-free access to the US market for most goods under the Caribbean Basin Initiative (CBI), an initiative of the Reagan administration in the 1980s which had both economic, ideological and geopolitical imperatives. The CBI is unilateral which means that the benefits can be unilaterally revoked and the criteria for eligibility changed at any time. However, CBI is generally believed to be beneficial to US manufacturing and jobs and Caribbean has a large trade deficit with the US, which should keep CBI off the President-elect’s immediate radar.

One sticking point in US-Caribbean trade relations is the cover over subsidies which the US Federal government pays to the US territories of Puerto Rico and the US Virgin Islands out of excise taxes it collects from imported rums, which has made Caribbean rums less competitive in the US market. Turning to merchandise trade in general, non-tariff barriers such as sanitary and phyto-sanitary and labelling requirements have also been a constraint on market access.

Caribbean workers benefit from temporary employment under the US Farm Workers and Hospitality Workers programmes. However, outside of this, Caribbean service providers have no preferential access to the US market. The CBI does not cover services trade. Caribbean business persons seeking to supply a service in the US instead rely on non-immigrant visas. Mr. Trump has promised to tighten the US’ border and control policy. It is not certain whether this will be extended to non-immigrant visas as well.

  1. Immigration & Workers’ Programmes

Mr. Trump made tightening immigration one of the cornerstones of his campaign platform. While his ire was directed towards Mexican and Muslim immigrants, Caribbean immigrants will be collateral damage. For instance, undocumented immigrants who had come to the US as children and had identified themselves in good faith when applying for protection under the Deferred Action for Childhood Arrivals (DACA) programme might have unwittingly made themselves prime targets for deportation if Mr. Trump goes through with his plans.

Most Caribbean immigrants are law-abiding citizens who are making sterling contributions to the American society. However, another pertinent concern is Mr. Trump’s vow to accelerate the deportation of those immigrants convicted of crimes to their country of birth, which has been a sticking point in US-Caribbean relations for some time. Caribbean governments have criticised the deportation of persons who were born in the Caribbean but socialised in the US with only superficial Caribbean roots. They have also linked these deportations to increased violent crime in the Region.

Mr. Trump has also spoken earlier about reforming legal immigration. This will make it difficult for Caribbean persons to emigrate legally to the US. This also has implications for remittances, a lifeline for many poorer Caribbean households.

5. Mobilising Climate Finance

Climate finance is needed to assist countries, particularly poorer and most vulnerable countries, in their climate change adaptation and mitigation efforts. It is something which the Small Island Developing States in particular were adamant upon during the negotiations leading up to the eventual signing of the Paris Climate Change Agreement.

Developed countries committed themselves to mobilising 100 billion USD in climate finance from a variety of sources each year by 2020, a pledge which dates back to Copenhagen in 2009 and one which President Obama has supported. Caribbean countries have also received climate change aid under USAID programmes.

Mr. Trump, however,  is not a believer in anthropogenic (man-made) climate change, and has vowed to “cancel the Paris Agreement”, to ramp up fossil fuel production and to defund the clean energy initiatives. Further US contribution to the Green Climate Fund, which was established to assist developing countries like those in the Caribbean, is now in question.

Conclusion

Mr. Trump’s election has evoked an aura of uncertainty over what will be the future paradigm of US-Caribbean relations. Although the Caribbean had not featured in the policy discussions during the campaign, Mr. Trump’s populist rhetoric illustrated a marked departure from the tenets of current US economic and foreign policy. He has, however, been light on specifics. If implemented, his proposals will be a strong departure from current US policy, particularly in the area of climate change which I addressed in a previous post.

Nonetheless there are two sparks of hope. Firstly, President-elect Trump is a businessman at heart and should be more attuned to a ‘dollars and cents’ argument. Secondly, Mr. Trump’s malleability in regards to his positions evinces some pragmatism on his part. It is worth remembering that for much of his public life, Mr. Trump has espoused liberal views until becoming an independent and then a Republican in later years. He has also softened some of his most ardent positions during the campaign and since winning the election, and has also been rumored to be considering some of his former Republican opponents for Cabinet positions.

These two factors suggest that there may be more scope for discussion with a Trump administration than may initially be perceived. What will the emerging Trump Doctrine mean for the Caribbean? And whether we will see a “hard” or “soft” Trump, to borrow the clever nomenclature employed by former WTO Director General, Pascal Lamy, no one knows. A clearer sense of Mr. Trump’s true policy orientation will be more discernible when more of his Cabinet picks are revealed and his proposals are elaborated upon.

While these issues I have highlighted will not be policy priorities for the Trump Administration, they are issues of importance to Caribbean countries. As such, Caribbean governments and other stakeholders must be pro-active in their engagement with the Trump administration from day-one when he assumes 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.

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.

US eases some restrictions on Cuban imports for personal use

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Alicia Nicholls

On October 14, 2016 the United States Department of Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) announced further amendments to the Cuba Sanctions Regulations. These changes became effective today (October 17, 2016) and include not just an ease on restrictions of Cuban imports, including alcohol and cigars, for personal use, but also facilitation of joint Cuba-US medical research and a variety of other trade measures.

Since the early 1960s, successive US governments have imposed an illegal economic, commercial and financial embargo on Cuba which is not only contrary to international law but has hindered the country’s economy development. In December 2014 US President Barack Obama outlined a new direction to normalise Cuba-US relations. Efforts at normalisation since 2014 have included, inter alia, the removal of Cuba from the US State Sponsors of Terrorism List in May 2015, the re-opening of embassies in July 2015 and the progressive relaxation of some sanctions.

However, US congressional action is needed to reverse the embargo. The embargo has been widely condemned by the international community. On October 26th, the UN General Assembly will be called on for the 25th consecutive year to vote on a Cuba-introduced resolution calling for an end to the five-decade long embargo.

Current Amendments to Cuba Sanctions Programme 

The current tranche of amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR) cover the following three broad areas:

  • Expanding opportunities for scientific collaboration and access to medical innovations
  • Facilitate increased humanitarian support, grant opportunities and improve Cuban infrastructure
  • Bolster trade and commercial activities and the growth of Cuba’s private sector

Some of the specific amendments are as follows:

  • Authorisation of joint-medical research with Cuban nationals for non-commercial and commercial research
  • Importation , marketing, sale and distribution in the US of FDA-approved Cuba-origin pharmaceuticals
  • Persons who engage in those above activities will be allowed to open and maintain bank accounts in Cuba for use in conducting authorised business
  • Authorisation of grants, scholarships and awards to Cuba or Cuban nationals for scientific research and religious activities
  • Authorisation of persons subject to US jurisdiction to provide services to Cuba or Cuban nationals relating to developing, repairing, maintaining and enhancing certain Cuban infrastructure to directly benefit the Cuban people
  • Removal of monetary value limitations on what authorised travelers may import from Cuba into the US as accompanied luggage. These include Cuban alcohol and cigars. However, the imports must be for personal use and normal limits on duty and tax exemptions will apply.
  • BIS will generally authorise exports of certain consumer goods that are sold online or through other means directly to eligible individuals in Cuba for their personal use
  • Expanded general license by OFAC authorising persons subject to US jurisdiction to enter into certain contingent contracts for transactions currently prohibited by the embargo, subject to conditions.
  • OFAC authorisation of importation into the US or a third country of items previously exported or re-exported to Cuba under a BIS or OFAC authorisation

Comprehensive information on all of the amendments may be obtained via the US Treasury Department’s website 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.

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