2020 has opened with plenty of good news on the US trade front. The new year kicked off on a high note as the US-Japan trade deal entered into force on 1 January 2020. We have also seen significant progress made on the United States-Mexico-Canada Agreement (USMCA) and the US-China Phase One trade deal. In this edition, we look at these developments along with an update on the state of transatlantic trade talks and a brief overview of other US trade initiatives that may prove fruitful in the coming months.
US-China Phase One Trade Deal
The US-China Phase One Trade Deal was signed on 15 January 2020 and will enter into force by 14 February 2020 at the latest, marking a pause on the US-China trade war after almost two years of ongoing economic conflicts and negotiations. While all existing tariffs from the both sides remain in place, the US and China both cancelled additional tariffs that were scheduled to come into effect on 15 December 2019. In addition, China has promised to purchase more US agricultural products and to comply with WTO rules. The US also announced the reduction of US Section 301 List 4A tariffs from 15% to 7.5% to take effect on 14 February 2020.
According to Peter Navarro, the White House trade advisor, the Phase Two trade talks with China will include cessation of Chinese subsidies on its state-owned enterprises, halt to Chinese cyber intrusions hacking into American businesses and stealing trade secrets, and curbs on the flow of illicit fentanyl. In addition, recent news reports indicate that President Trump intends to tie Hong Kong’s pro-democracy movement with Phase Two trade negotiations. Analysts speculate that a Phase Two Trade Deal is unlikely to be reached in 2020 while the US government implements and monitors Chinese compliance with the Phase One trade deal.
US Section 301 List 4A Tariffs Exclusion Request Process About to Close
We wanted to remind everyone that the portal for filing exclusion requests for goods targeted on US section 301 List 4A will be closed on 31 January 2020. Since 31 October, USTR has opened an exclusion process for imported goods from China found on US Section 301 List 4A and subject to 15% tariffs as of 1 September. These tariffs will be decreasing to 7.5% on 14 February as part of the US-China Phase One trade deal. See the TradeMoves blog on the exclusion process for more details. If you are a US company that imports from China, be sure to seize the last chance to take advantage of this opportunity for potential tariff relief.
Following the passage of the USMCA in the US House in mid-December, the US Senate also passed the pact on 20 January 2020 in an overwhelming 89-10 vote. The pact has now been sent to President Trump to be signed into law. According to news sources, President Trump is expected to sign the USMCA on Wednesday, 29 January 2020, after his return from the Annual World Economic Forum. As the US and Mexico both completed their ratification processes, all eyes have turned to Canada, the last remaining party that must complete its ratification process before the deal can enter into force. The process is expected to be completed no sooner than early March.
The USMCA is the result of the North America Free Trade Agreement (NAFTA) re-negotiations that began in 2017. The US, Canada, and Mexico agreed to modernize the NAFTA with provisions that include intellectual property protection, digital trade and lower de minimis value, and environmental and labor regulations to adapt to the 21st century. In addition, USMCA also includes provisions that allow the US to gain more market access into Canada’s dairy market. NAFTA duty-free quota free treatment for goods traded within North America will be maintained.
Transatlantic Trade Dispute
After a WTO compliance panel ruled earlier in December that the EU had not yet complied with their ruling on illegal subsidies to Airbus, USTR proposed to expand additional duties from 10% or 25%, to as high as 100% on the current retaliation list of $7.5 billion of EU products, and to potentially add new products to the targeted list. In mid-January, in order to resolve the dispute, the EU Trade Commissioner Phil Hogan traveled to Washington to initiate trade talks with the US. Although the negotiations between the US and EU are ongoing, President Trump has threatened to impose auto tariffs under US Section 232 if a deal is not reached. In addition, a conclusion to a similar WTO dispute over US subsidies to Airbus rival Boeing, which could see EU retaliatory tariffs imposed on imports from the US, is expected to be announced in the Spring of 2020.
On the other hand, we welcome good news regarding another transatlantic trade dispute – US Section 301 investigation into a new digital services tax imposed by France that the US argued disproportionately targeted US technology companies. The US will not impose the proposed tariffs as high as 100% on $2.4 billion of French products (cheese, wine, handbags, etc.) in 2020 after President Trump and French President Macron agreed on 20 January 2020 that both sides will not impose any punitive tariffs this year.
Other US Trade Initiatives
Recent news reports have indicated that US-India trade negotiations are nearing the final stages. In mid-January, both sides discussed President Trump’s potential visit to India that would provide an opportunity for President Trump and Indian Prime Minister Modi to announce a trade deal. The US stripped India of its US Generalized System of Preferences (GSP) preferential tariff status in June of 2019. In addition, on WTO reform, the US, EU and Japan met in Washington to address issues such as forced technology transfer, non-market practices, and industrial subsidies. The Trump administration has also expressed interest in pursuing trade deals with African nations, Philippines, Switzerland, Taiwan, and the UK, following its Brexit on 31 January 2020.
The year 2020 has had some major positive trade developments – US-Japan Trade Agreement entering into effect, US-China Phase One Trade Deal signed, and the passing of the USMCA. While developments remain uncertain on US-India and US-EU trade negotiations, and the WTO reform, potential trade talks with several countries identified on the US trade agenda should be on US exporters’ radars. We are cautiously optimistic that trade tensions may ratchet down in the run up to US elections, and hopeful that more market access opportunities will be offered for US export sales in 2020.