The U.S. Mexico Canada Agreement (USMCA) was signed on December 2019 and went into effect on July 1, 2020. It revised the NAFTA text on important topics and added new concepts, such as an expiration date, at the end of its 16th year. Below are some highlights. In IP, the USMCA requires national treatment for copyrights, procedural safeguards for recognition of new geographical indications, more enforcement provisions for IP protection, among others. On digital trade, it prohibits the application of customs duties and other discriminatory measures to digital products distributed electronically; ensures that data can be transferred across borders; permits the use of electronic authentication and electronic signatures; cracks down on data localization measures; promotes collaboration in addressing cybersecurity challenges; and protects against forced disclosure of proprietary computer source code and algorithms, among others. Environmental provisions have been incorporated into the core text of the agreement and are now subject to dispute resolution. The same goes for labor provisions and eleven other chapters of the agreement. While regional content for most products is set at 60 percent (transaction value method) or 50 percent (net cost method), for the automotive industry, USMCA increases the regional value content to 75 percent North American, establishes that 40 to 45 percent of auto content be made by workers earning at least $16 per hour and stipulates that at least 70 percent of a producer’s steel and aluminum purchases must originate in North America1 . USMCA is now the new starting point, not the template, for trade agreements with the U.S. For countries outside the agreement, the impact will continue to be negative for exports to USMCA markets, especially in products where regional content was increased (auto parts, steel and aluminum, for example) and in agricultural products, where MFN tariff and non-tariff protections in the U.S. are the highest. The full text is available here. Section 232 On June 2, 2020, the Department of Commerce initiated a new Section 232 investigation, based on National Security grounds, adding Vanadium to the list of investigated products (steel and aluminum are others). Vanadium is a chemical often found with titanium and iron in their ores and that is used in the production of steel alloys for manufacture of extremely tough plates and tools. According to “Mining Weekly”, in 2019, the U.S. produced 470 tons of contained vanadium while its apparent consumption was 8,300 tons, making it almost entirely dependent on imports. Eight countries2 are the main exporters of vanadium in its different forms to the U.S. market. In the case of Brazil, this investigation adds to steel and aluminum, which have been 1 It is worth noting that it is unclear whether exporters will choose to export under USMCA provisions, as many economists consider that these provisions are too cumbersome to avoid a tariff of 2.5%. However, exporting under USMCA would be interesting if the US eventually applies Section 232 tariffs in auto. 2 (Ferrovanadium from Austria (48%), Canada (22%), Russia (14%), Korea (11%) and other countries (5%); and Vanadium Pentoxide from South Africa (44%), Brazil (29%), China (11%), Taiwan (6%) and other countries (10%). ABCI Board Aluisio de Lima-Campos, Renata Amaral, Barbara Medrado, Lucas Queiroz Pires, Marcia Pulcherio under Section 232 sanctions in the U.S. for a while. On August 28, 2020 the White House reduced the import quota on semi-finished steel from Brazil, scheduling to hold consultations in December 2020. Biden’s Trade Policy A potential Biden win in November is not likely to immediately alleviate U.S. trade tensions. An analysis of Biden’s official campaign promises reveals that U.S. trade policy led by Biden will offer a similar approach in terms of dealing with China and trade remedies. In trade negotiations, however, a Biden administration will likely bring environment and labor provisions to a higher priority. In terms of similarities, Biden promises to strengthen “Buy American” rules. Trade remedies are likely to be used with the same intensity as the Trump administration. Biden envisions a “future made in America” and suggests that this “requires fighting back against unfair trade practices.” Regarding China, the friction will likely remain at similar levels as Biden’s campaign observes Trump did “nothing to curb Beijing’s trade abuses” and that “China’s government continues its trade abuses and is failing to live up to its commitments.” Biden’s Tax and Trade Strategy include the following actions: (1) take aggressive trade enforcement actions against China or any other country that engage in unfair practices (e.g., currency manipulation, dumping, state-owned company abuses, or unfair subsidies.); (2) confront foreign efforts to steal U.S. intellectual property; (3) address state-sponsored cyber espionage against U.S. companies. Biden is also likely to stick to U.S. Trade Representative Robert Lighthizer’s efforts to persuade U.S. companies to reshore. Biden plans to establish a “claw-back” provision to force a company to return public investments and tax benefits when the company transfers U.S. jobs to other countries and to reverse tax policies that encourage outsourcing. Biden program diverges from the Trump administration’s approach to trade in three main issues. First, Biden proposes to rally U.S. allies in a coordinated effort to pressure the China. Second, Biden proposes to apply a carbon adjustment fee against countries that are failing to meet their climate and environmental obligations. Third, Biden proposes to enforce existing labor provisions and aggressively push for strong and enforceable labor provisions in trade deals his administration negotiates. US-China Deal and Agricultural Goods The six-month review of the U.S.-China phase one trade deal was held on August 24, 2020. According, to the USTR, both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement. While there was a significant increase of China’s purchases from the United States, particularly of agricultural products, China’s total imports from the U.S. was $48.5 billion through July 2020, which is less than half needed to be on track to meet its commitments, as the PIEE points out. The pandemic spread right after the phase one deal went into effect also contributed to the reduced demand for many agricultural products. It remains to be seen whether current U.S. supply of agricultural products will fulfill the ambitious commitments of the U.S.-China deal and how other major agricultural players like Brazil will be affected. Through July 2020, China received 40% of the agricultural products from Brazil, the highest share of China in Brazil’s agricultural exports to date.
ABCI Board Aluisio de Lima-Campos, Renata Amaral, Barbara Medrado, Lucas Queiroz Pires, Marcia Pulcherio