In response to President Trump’s Executive Order 13786 (see our update of April 3, “Executive Order Calls for Omnibus Report on Significant Trade Deficits”), the governments of Canada and Mexico have filed formal comments with the Department of Commerce ahead of the public hearing to be held on May 18, 2017.

While Mexico’s formal report is detailed, it notes:

The US trade deficit with Mexico is explained mainly by the way North American value chains are integrated. Mexico is the main supplier for many US industries, and this supplier relationship naturally creates trade deficits. Imports from Mexico enable US manufacturers to remain competitive in global markets, enhancing their ability to export to other countries and to provide American consumers with high quality goods at more competitive prices. The Mexican-US partnership strengthens both countries’ position in global markets and enhances our regional competitiveness to the benefit of workers, consumers and producers on both sides of the border.

The comments also note the strong ties and regional supply chains created under the North American Free Trade Agreement (NAFTA), and that “American manufacturing jobs depend on Mexican manufacturing jobs and vice-versa, since workers on both sides of the border work together in the production of goods to successfully compete in global markets.”

Canada’s formal report highlights the fact that the United States normally has a trade surplus with Canada and that “[o]ur trade is characterized by a high level of integrated production, with companies on both sides of the border using inputs from the other.” Further, the comments note that the U.S. relies on imports of Canadian raw materials and intermediate goods that ensure the competitiveness of U.S. manufactured products, and that the two countries have long cooperated to reduce impediments to trade.

To review other comments submitted for the record, visit www.regulations.gov and search for Docket ID: ITA-2017-0003; International Trade Administration.

Asserting that importers who evade antidumping and countervailing duties in place against them expose U.S. employers to unfair competition and deprive the U.S. government of lawful revenue, President Trump signed an executive order, “Establishing Enhanced Collection and Enforcement of Antidumping and Countervailing Duties and Violations of Trade and Customs Laws,” on March 31. The order directs the secretary of Homeland Security, in consultation with the secretary of the Treasury, the secretary of Commerce and the United States trade representative, to develop an implementation plan by June 29, 2017 that would (1) require covered importers (those who, based on a risk assessment conducted by Customs and Border Protection, pose a risk to the revenue of the United States) to provide security for antidumping and countervailing duty liability through bonds and other legal measures, and (2) identify other appropriate enforcement measures.

According to the order, $2.3 billion in antidumping and countervailing duties owed to the government remained uncollected as of May 2015. Trump stated, “I’m signing [this] executive order to ensure that we fully collect all duties imposed on foreign importers that cheat. They’re cheaters. From now on, those who break the rules will face the consequences – and they’ll be very severe consequences.”

On April 29, 2017, President Trump signed an executive order creating the Office of Trade and Manufacturing Policy (OTMP) within the White House. Peter Navarro, who was previously named to head the White House’s National Trade Council which was never formally established, will lead the office.

OTMP’s stated mission is “to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.” It will serve as a liaison between the White House and the Department of Commerce and undertake trade-related special projects as requested by the president.

On April 29, 2017, his 100th day in office, President Trump announced an executive order directing the U.S. trade representative (USTR) and secretary of the Department of Commerce to commence a review of “all bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the United States is a party” and “all trade relations with countries governed by the rules of the World Trade Organization (WTO) with which the United States does not have free trade agreements but with which the United States runs significant trade deficits in goods.” In a press briefing, Secretary of Commerce Wilbur Ross clarified that this executive order differs from others previously signed by the president in that it will focus “more narrowly on the agreements themselves,” even those that do not result in deficits, and not on the behavior of individual countries.

The review of each agreement must be submitted to the president within 180 days (late October 2017) and identify violations or abuses of any U.S. trade agreement, including the WTO, as well as any trade preference programs and investment agreements. The review will identify trade agreements and programs that “have failed with regard to such factors as predicted new jobs created, favorable effects on the trade balance, expanded market access, lowered trade barriers, or increased United States exports.”

In signing the executive order, Trump has authorized the secretary of Commerce, the USTR and other heads of executive departments and agencies to “take every appropriate and lawful action to address violations of trade law, abuses of trade law, or instances of unfair treatment.”

While Ross made clear that the review would cover all trade agreements, the United States has only 20 such agreements and much U.S. trade occurs with countries who are members of the WTO. He stated that the WTO has “a ‘most favored nation clause,’ meaning that of all the countries with whom we do not have a free-trade agreement, we must charge the same tariff on the same item to those – each of those countries as we charge to the others. So that’s a significant impediment toward getting to anything like a reciprocal agreement.” He also criticized the WTO agreement for not effectively dealing with non-tariff trade barriers and intellectual property rights, as well as claiming there were certain structural problems with the agreement, especially the dispute settlement provisions. When asked if the United States would consider withdrawing from the WTO, Ross replied that, while the review has not yet begun, “as [with] any multilateral organization, there’s always the potential for modifying the rules of it.”

With the Trump administration preparing to release its tax reform plan in the next several weeks, the Congressional Research Service (CRS) has just released a timely report on the border adjustment tax (BAT). The report offers an analysis of House Speaker Paul Ryan’s proposal of a destination-based cash flow tax (DBCFT), a type of national consumption tax, as part of the “A Better Way” tax reform blueprint. One component of the DBCFT proposal is the implementation of a BAT, which has generated considerable interest since the November presidential election.

The report states that although there are many important issues surrounding a BAT that require careful consideration, the response of exchange rates is one that has received much attention. “Standard economic theory predicts that under certain conditions exchange rates would react to a BAT in a way that would leave exports and imports unchanged. That is, exchange rate movements would offset the effects of the tax, leaving the U.S. trade balance unaltered. Some observers, however, have speculated that such a response may not occur in a timely fashion or that exchange rate movements may not completely offset the tax. If either of these two situations were to occur, or if impact across industries was asymmetric, there could be implications for U.S. businesses and consumers, and as a result, the U.S. trade balance.” The CRS report provides a basic framework for understanding how and why exchange rates could respond to a BAT.

The report concludes that replacing the current corporate income tax system with a DBCFT with a BAT would be an “unprecedented shift in U.S. tax policy.” While such a change would bring uncertainty, CRS analysts stated that “economists tend to agree that any tax-induced advantage for U.S. exports or tax-induced costs on U.S. imports would be offset by adjustments to the exchange-rate value of the dollar. In other words, if the dollar appreciation occurs as economic theory predicts, there should be no changes in the trade balance resulting from tax.”

The Department of Commerce and United States Trade Representative will hold a public hearing and seek written comments to assist in the analysis called for in Executive Order 13786 (see our prior update, “Executive Order Calls for Omnibus Report on Significant Trade Deficits”). The trading partners with which the United States had a significant trade deficit in goods in 2016 were Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Switzerland, Taiwan, Thailand and Vietnam.

The schedule and deadlines are as follows:

  • Wednesday, May 10, 2017, 11:59 p.m. EDT – deadline for interested persons to submit written comments. Also, this is the deadline for requests to appear at the hearing, which must include a summary of your testimony.
  • Thursday, May 18, 2017, 9:30 a.m. EDT – public hearing at the U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, D.C.

For full details, please see the Federal Register notice.

On April 18, 2017, President Trump signed an executive order seeking stricter enforcement of federal procurement policies and revamping the H-1B guest-worker visa program. In remarks on signing the order, Trump stated, “With this action, we are sending a powerful signal to the world: We’re going to defend our workers, protect our jobs, and finally put America first.”

For “Buy American,” the executive order:

  • Instructs every agency and department to conduct comprehensive assessments aimed at cracking down on weak monitoring, enforcement, and compliance efforts in order to strengthen Buy American policies.
  • Targets waivers and exceptions that have allowed foreign goods unfair advantages in U.S. government procurement.
  • Orders that America’s involvement in the World Trade Organization’s Agreement on Government Procurement and other trade deals be reviewed to ensure they meet the president’s standards.
  • For the first time, requires that the Buy American bidding process must take into account unfair trade practices.
  • Promotes American-made steel by affirming the “melted and poured” standard for steel production in the United States.

Commerce Secretary Wilbur Ross is tasked with reviewing all agency findings under this section of the executive order and providing a report to President Trump by November 23, 2017 recommending how to “close those loopholes” and identify flagrant use of unfair trade practices by foreign trading partners. An official stated that this report will serve as “a blueprint for additional executive and regulatory actions to further strengthen Buy American, as well as guide possible legislative proposals.”

For “Hire American,” the executive order:

  • Calls on the executive branch to fully enforce the laws governing the entry of foreign workers into the U.S. economy to promote rising wages and more employment.
  • Directs federal agencies to propose reforms to the H-1B program in order shift the program back to its original intent and prevent the displacement of American workers.

The president has particularly focused on alleged abuses of the H-1B program, asserting that, instead of allowing U.S. companies access to highly skilled foreign workers in fields where U.S. workers cannot fulfill demand, the program is being used to hire lower paid foreign workers to displace U.S. workers from entry-level jobs.

“This historic action declares that the policy of our government is to aggressively promote and use American-made goods and to ensure that American labor is hired to do the job,” Trump stated.

In a draft letter to the Senate and House of Representatives, the Trump administration appeared closer to formally announcing and notifying Congress of its intent to begin renegotiating the North American Free Trade Agreement (NAFTA). The draft notes that the “persistent U.S. deficit in goods trade with Canada and Mexico demands that this administration take swift action to revise the relationship to reflect and respond to new 21st century challenges. The NAFTA was negotiated 25 years ago and while our economy and businesses have changed considerably over that period, the NAFTA has not.”

The draft includes a list of 19 specific negotiating objectives, including issues surrounding trade in goods, rules of origin, customs matters and enforcement cooperation, trade in services, government procurement, transparency and regulatory reform, the operations of state-owned and state-controlled enterprises, and trade remedies.

Regarding trade remedies, the administration’s objectives include (1) seeking a safeguard mechanism to allow a temporary revocation of tariff preferences, if increased imports from NAFTA countries are a substantial cause of serious injury or threat of serious injury to the U.S. domestic industry, and (2) seeking to preserve the ability of the United States to vigorously enforce and promote its trade remedy laws. Another objective is to eliminate NAFTA’s separate Chapter 19 dispute settlement procedures for antidumping and countervailing duty cases, arguing that panels have ignored the appropriate standard of review and applicable law, and aberrant panel decisions have not been effectively reviewed and corrected.

Sending the draft NAFTA notice to the congressional committees of jurisdiction is required under the provisions of the Trade Promotion Authority law. Further, it appears to be part of an ongoing effort by the Trump administration to negotiate with Congress on a final, official notice that will trigger a 90-day consultation process before NAFTA negotiations can begin. The Senate, however, has yet to confirm Robert Lighthizer as U.S. trade representative, and shortly after the draft notice was leaked, the White House quickly noted that it does not yet know the “final form” the official notice will take.

The Trump administration on April 3, 2017 issued a notice of initiation and request for public comment and information pertaining to whether the People’s Republic of China (PRC) should continue to be treated as a nonmarket economy (NME) country under the antidumping and countervailing duty laws. The notice in the Federal Register indicates that this inquiry is part of the Department of Commerce’s less-than-fair-value investigation of certain aluminum foil from the PRC.

The notice states that the Department of Commerce has treated the PRC as an NME country in all past antidumping duty investigations and administrative reviews. Yet, under the agreement with the PRC regarding its accession to the World Trade Organization (WTO), the PRC believes that WTO members were required to begin treating it as a market economy in December 2016. The department is conducting this inquiry in order to obtain the most recent data and information available from U.S. industry, and the notice states that U.S. law allows it to review the PRC’s nonmarket economy status “at any time.”

The timing of this notice is interesting, given that Chinese President Xi Jinping is traveling to the United States for talks later this week.

President Trump signed an executive order on March 31 requiring that the secretary of Commerce prepare and submit a report that examines the causes of trade deficits within 90 days (i.e., by June 29, 2017). The analysis will focus on the major causes of trade deficits, including, as applicable, differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights and labor standards, and any other form of discrimination against the commerce of the United States or other factors contributing to the deficit. The report will also assess the effects of trade relationships on the production capacity and strength of the manufacturing and defense industrial bases of the United States and on employment and wage growth in the United States, and identify imports and trade practices that may be impairing the national security of the United States.

In signing the order, the president stated that he was “ordering the first-ever comprehensive review of America’s trade deficits and all violations of trade rules that harm the United States and the workers of the United States.” The executive order states that “For many years, the United States has not obtained the full scope of benefits anticipated under a number of international trade agreements or from participating in the World Trade Organization. The United States[’] annual trade deficit in goods exceeds $700 billion, and the overall trade deficit exceeded $500 billion in 2016.” In announcing the order, Trump stated that “We’re going to investigate all trade abuses, and, based on those findings, we will take necessary and lawful action to end those many abuses.”

Secretary of Commerce Wilbur Ross has indicated that the study will focus on the countries primarily responsible for the U.S. trade deficit: China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, South Korea, Malaysia, India, Thailand, France, Switzerland, Taiwan, Indonesia and Canada.