Proving once again that good ideas cannot be killed, the Trans-Pacific Partnership (TPP) is ready to move into force as soon as next year. Companies had largely given up on the TPP after the withdrawal of the United States. Now firms will need to scramble to figure out how the agreement matters to their business and what steps they should take to maximize the opportunities and minimize the risks arising from the most important trade agreement in decades. What makes the TPP so relevant is the deep, interlocking nature of the commitments. Unlike other free trade agreements (FTAs), the TPP doesn’t simply open up trade in some goods or partially address services or investment. It manages to better reflect the way that firms actually structure business operations today. It will allow companies to more seamlessly move goods, services, and investments between and across TPP member markets. This benefits not just the biggest firms that have always had advantages of scale, but smaller firms that often struggle to sort out complex rules in trade deals.
Foiled Again: China Fails to Gain Market Economy Status in the US
On the eve of US President Donald Trump’s visit to China, the trade waters have been stirred up further by a pair of rulings issued by the US Department of Commerce late on Friday, October 27. In a 205-page memo, Commerce officials argued that China remains a non-market economy (NME) because “it does not operate sufficiently on market principles to permit the use of Chinese prices and costs for the purposes of the Department’s antidumping analysis.” This determination was promptly employed in a case over aluminum foil, where a preliminary determination calculated that Chinese companies will need to pay antidumping duties ranging from 97-162 percent. The debate over China’s economic status has been long and fraught. The crux of the issue, to simplify matters significantly, is really two-fold. First, it is about practical consequences related to classification determinations. Second, it is about issues of identity and obligations.
RCEP and Digital Services
Larger regional agreements, like RCEP, provide the size and scale in an agreement that can unleash new growth prospects. To get there, however, requires officials, ministers and leaders to seize the chance and create something special. RCEP has to address barriers to trade in services, for example. Services are critically important to the economy of the future. Even trade in goods requires that services be considered, since blockages on the movement of services across borders can fundamentally impede the growth of trade in physical products like manufactured goods and agricultural items. Increasingly, services will be provided digitally. One such example is the rise of online travel agencies (OTAs.) These service providers represent a new dimension to travel and tourism, as they match up customers seeking things like accommodation, rental cars, or local experiences like cooking classes or photography tours with local providers and vendors of such services.
What Happens If NAFTA Collapses?
The damage would be swift. Businesses, farmers and consumers have become so accustomed to NAFTA over the decades that most have forgotten what benefits actually flow from the agreement. But focus on just the problems faced by US agriculture. Right now, nearly all agricultural products go duty free into both Canada and Mexico. Most items flow with limited paperwork and little customs hassle. This will not be the case if NAFTA ends. US exports of corn into Mexico will suddenly face tariffs of 10-15%. Soybeans, grains and flours jump overnight to 10-15% as well. Mexico is one of the best markets for US red meat exports, especially for many cuts that Americans do not favor. Many of these products could face tariffs as high as 234%.
Section 301 Investigation: The Expected and The Unexpected So Far
So what happens next? Under the terms of Section 301, USTR has completed two key items on the checklist. It will likely issue a damage assessment figure that can be used as the basis for a preliminary calculation of potential sanctions. These sanctions could be rolled out at any time between now and August 2018, if the US decides that China is making insufficient progress towards satisfactory resolution of the problems identified in the original complaint.
But as the comments and hearing illustrated, it remains unclear at this point what is the likely area or areas where USTR might chose to focus attention. The comments failed to shed new light on specific challenges in a way that might have made it easier to guess which way the investigation will roll in the future.