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What happens next with Trump and trade

Trying to assess the future effects of Trumpian trade policy is becoming a full time focus of our practice.

It is prudent to do on the ground research and outreach.

What happens next with Trump and trade

iPolitics Insights

Peter Clark

Thursday, January 26th, 2017

President Donald Trump continues to peel back the Obama legacy like an onion. With the stroke of a pen he unblocked TransCanada’s Keystone XL pipeline project and will try to expedite the completion of the Dakota Access pipeline. If it gets past the protests and litigation, Keystone will have important benefits for the United States — and for Canada.

Prime Minister Justin Trudeau celebrated the decision for the benefits it’s expected to bring to struggling Alberta. The Buy American requirement for steel will not be welcomed by Premier Brad Wall, though; Saskatchewan has introduced important tax concessions to expand the Evraz large diameter pipe mill at Regina.

During the Republican primaries and the election campaign, Trump said he (or the U.S.) would want a piece of the Keystone action; now he wants to re-negotiate the deal. That Buy American rules will apply to steel for pipelines is not a surprise. Trump is trying to make the Keystone approval a gift that keeps on giving, but not for Canada. (Will Canadian line pipe stockpiled in the U.S. have to come home now?)

Trump and Trudeau will not be conducting day-to-day negotiations; at least, history suggests they won’t. President Trump has been very hands-on so far and may fancy himself as Closer-in-Chief. To him, strategy appears to be at least as important, if not more important, than ideology. The business of running the largest economy in the world is very time-consuming, and these are early days. It’s important to understand who is behind the development and delivery of administration trade policy.

As Secretary of Commerce, Wilbur Ross will be the guiding force for the implementation of trade enforcement and for bringing jobs home. Mr. Ross made his fortune buying steel, auto parts and textile assets out of bankruptcy, restructuring and selling them. His confirmation hearing before the Senate resembled a love-in. He is very capable and comfortable being in charge. Mr. Ross is the steel fist in a velvet glove — a seasoned gunslinger who will not accept failure.

The Department of Commerce is responsible for anti-dumping and countervailing duty investigations and enforcement. Trading partners should be wary of his willingness to self-initiate trade remedy anti-dumping and countervailing duty investigations. The usual detailed complaints — with evidence of dumping, or subsidies and injury — will be waived on his watch. This will help small businesses get faster relief with minimal upfront costs — and signal to the bad actors that the U.S. means business. Don’t expect these self-initiations to be limited to helping small or fragmented industries.

Robert Lighthizer will be the United States Trade Representative — if his work decades ago for foreign governments does not disqualify him first. Lighthizer, a former deputy USTR in the Reagan administration, is a veteran of the U.S. steel wars and other high-level trade battles. He is smooth but tough. He will be the chief negotiator and — more important to the Trump Administration — the Enforcer-in-Chief in a trade policy regime focused on enforcement.

Lighthizer knows all of the levers available to the USTR — how to use them, how to bend them and, if need be, how to invent new ones. He has been a harsh critic of WTO dispute settlement for going beyond strict interpretation of the agreements and thus creating new obligations. (While the WTO Appellate Body has generally performed well, I share his concerns.)

Current USTR General Counsel Tim Reif will be staying on as a special advisor to Lighthizer. Mr. Reif is a Democrat and former Hill staffer respected on both sides of the aisle. Lighthizer knows and trusts him. The Trump agenda will be more attractive to some Democrats than to most Republicans. Mr. Reif, who is close to Rep. Sander Levin (D-MI), is a valuable link to that support.

China will be the principal target for enforcement trade challenges (at the WTO) and trade remedy actions, but not the only one. There will be other challenges as the USTR and the administration work to clean up or reduce outstanding irritants in its extensive Foreign Non-Tariff Measures inventory. While Canada is not in the crosshairs yet (isn’t NAFTA enough?) we will not escape the enforcement squad.

Finally, University of California economics professor Peter Navarro will head up the National Trade Council in the White House. He is an extreme China-phobe whose public criticisms of Beijing have reportedly influenced President Trump’s thinking.

The act of bringing Navarro into the White House has shocked China and perhaps a few other U.S. trading partners. This helps to soften up the opposition and might lead to acceptance of less-extreme-than-advertised solutions.

Navarro’s extreme views are illustrated in his documentary, “Death By China: How America Lost Its Manufacturing Base”. (I watched it — can’t recommend the experience. Cruel and inhuman punishment.)

The Trump administration will enforce (and likely expand) U.S. rights through jawboning and immoral suasion, trade remedy investigations or WTO dispute settlement. Washington has been working to put its stamp on the Appellate Body, vetting its own nominees and blocking re-appointment of those who march to their own drummer.

The extreme, exhaustive U.S. style of litigating trade disputes does not facilitate prompt relief. In the case of Country of Origin Labelling — which cost Canadian livestock producers billions in lost exports — it took six years to litigate before two panels, two trips to the Appellate Body and the unprecedented publication of a possible retaliation list. This practice of exhausting all remedies is not likely to change under a president who is proud of never settling — unless he has to.

The likely Canadian targets of U.S. enforcers could range across many sectors. I touched on the perennial softwood lumber dispute, border tax adjustments and NAFTA Chapter 19 dispute settlement in a previous column. These are the big issues.

NAFTA re-negotiations will focus on Trans Pacific Partnership concessions of interest to the U.S. This will be a starting point, not the end game. I have written extensively on the TPP — widely hated by civil society and anti-corporate activists — as a good ground-breaking agreement. And while Trump has kept his promise to withdraw from the TPP, U.S. negotiators will use it a starting point for re-negotiating NAFTA.

We should expect that the NAFTA 2.0 template will become a model for other negotiations. It will avoid repetition and, if the partners are willing, lead to speedier agreements. This makes sense: Much of the text is boilerplate and the negotiations are about exclusions. In TPP, most of the asks originated with the United States — others wanted access to the U.S. market — while for Canada the real prize would be access to Japan and a bridge to Asia.

The USTR shopping list will include a number of specific Canadian targets.

Challenging provincial Liquor Board practices favouring local producers and increased access for dairy and poultry products are always near the top of the U.S. shopping list. The latest challenge — of excluding imported wine from B.C. grocery stores — was launched in the dying days of the Obama Administration.

In Washington, consistency is the bugbear of small minds. USTR and Congress will ignore the extensive U.S. preferences for small breweries and wineries and pass them off as tourism promotion. And the “deep pockets” support for U.S. farmers and ranchers is protected by rules which exempt from WTO discipline the most egregious practices by labelling the support “green” or non-actionable.

Canadians are always concerned about possible demands to divert our water to shore up U.S. irrigation systems. Refusal to divert lakes and rivers to the U.S. would fall outside WTO prohibitions on export controls. Controls on bulk water exports could be an “iffy” situation. Given that about 45 per cent of U.S. agricultural production is from the 17 states most dependent on subsidized irrigation, and water tables under these states are declining – we should not assume that this won’t become an issue.

Other items on the shopping list will likely include:

– Eliminating restrictions on grading U.S. wheat and barley exported to Canada.

– A Personal Duty Exemption for returning residents who have been out of Canada for less than 24 hours. Currently there is none – but CBSA officers at the land border tend to be flexible about small purchases, particularly those which are not subject to GST/HST. The United States considers that the $800 limit for longer stays should apply to all absences from Canada. This would be great for Canadians living close to the border and U.S. retailers. It likely would be a nightmare for Canadian retailers already trying to cope with burgeoning e-commerce alternatives.

– Increasing the duty/HST exempt limit for courier packages from $20 to $200., FedEx and U.S. e-commerce merchants have been lobbying hard for this. Increasing the exemption would be an important revenue drain for Canada — and more problems for Canadian retailers (and manufacturers). U.S. efforts to sell this approach in the TPP negotiations did not gain much traction. In a bilateral negotiation the pressures will be more difficult to resist.

– Support for the aerospace industry is on USTR’s list. Brazil has already raised concerns about subsidies to Bombardier. Expect Washington to join in. The C-Series competes with smaller Boeing aircraft. General Electric has also expressed concerns about support to Pratt & Whitney for its successful new engine.

– Notwithstanding Canada’s frustration with U.S. state-level Buy American requirements, Hydro Quebec local-content procurement requirements have raised a red flag in Washington.

– Should the consolidation of federal government technology systems under a single platform be handled by U.S.-based “cloud” computing suppliers? Canada says no for national security reasons.

This is not an exhaustive list. When the re-negotiation process begins there will be no shortage of U.S. stakeholders with new issues. This is a glimpse of the continuing reality in the largest and most balanced bilateral trading relationship in the world.

Some of these issues may seem relatively small, but they are important to affected Canadian stakeholders. The cumulative effects can be serious. It does not matter if you are guillotined or nibbled to death by ducks; the end result is the same.

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