It should come as no surprise to anyone who has been paying attention that several developments of 2016 will bear fruit in 2017. Trade Watch 2017 lists some key issues to watch out for in the trade arena this year:

Brexit:

Britain must act on its vote to leave the European Union. January 17, (2017) Prime Minister Theresa May outlined her 12-point plan for doing so. It includes negotiation of a new, bold, and ambitious free trade agreement with Europe and new trade agreements with other countries to recapture Britain’s role as a “great, global trading nation”. This plan announces the intent of a complete re-negotiation of the terms on which Britain accesses the European single market with the hope of minimizing the burdens and maximizing the gains. It will take at least a couple of years to find out to what extent she succeeds. The date to watch for this year is March 31. This is the date Ms. May is expected to trigger Article 50 of the Treaty on European Union and formally request withdrawal from the EU. This request will kick start a withdrawal negotiation process that is expected to last two (2) years. Ms. May has indicated that she hopes to also use this two-year period to also negotiate the new terms on which Britain will access the EU single market. That remains to be seen.

US Policy Changes & Their Impact:

President Trump takes office January 20 (2017). Indications of what to expect with regards to trade policy from a Trump Administration are still taking shape. In our post following Trump’s election, we indicated that an important clue will be his Cabinet picks for U.S. Trade Representative and Secretary of Commerce. His nominees, Robert Lighthizer and Wilbur Ross, respectively, confirm the intent to pursue a strong policy aimed at reducing the US trade deficit with China. The policies to be pursued could include imposing tariffs and other barriers that run counter to international trade rules. China, further incensed by Trump’s disregard of long-standing U.S. adherence to the “One China policy”, has promised a trade war. Mexico has also promised its own trade war if Trump makes good on his intention to impose tariffs on goods produced in Mexico when imported into the U.S., in contravention of the North American Free Trade Agreement (NAFTA). Will it be protectionism or will reason prevail?

While 2016 began with news of U.S. trade expansion, the opening stories for 2017 are of retrenchment. Just as Trump has promised to renege on NAFTA he has also said he will not take steps to ratify the TransPacific Partnership (TPP) Agreement. The TPP was concluded in 2016 among 12 Pacific Rim countries, including the United States. Will Trump withdraw from the TPP on his first day in office, as he has said he will? President Obama in January 2016 began chipping away at the longstanding U.S. trade embargo against Cuba and continued this path up through his last days in office. Will the Trump Administration leave in place the new regulations towards Cuba?

Trade Agreements and US Congress:

The Republican Party has retained control of both houses of the US Congress. Traditionally, Republican President + Republican-controlled Congress = Full Steam Ahead on Trade. Incoming President Trump, however, has been ambivalent, at best about trade agreements.

Trade policy is discussed on the second page of the Republic Party’s new platform. It is essentially a repudiation of President Obama’s policies and validation of Trump’s criticism of China. It calls for a tougher approach to negotiating trade agreements. Other areas in the platform are more aggressive and identify new trade agreements and expanded access to markets as the means of creating jobs and generating income for Americans. It also identifies trade as a means of strengthening relations with countries and regions around the world – even Russia.

Negotiating trade agreements means giving up some of what you want in order to get more of what you prefer. The party platform, on the other hand, contains strong rhetoric with regards to American sovereignty and against international treaties and other international obligations that, in Republicans’ view, undermine it.

The above sentiments will not be reassuring to US trade partners. The statements must also be viewed in light of the announced intentions to walk away from the newly-concluded TPP trade agreement. President Obama negotiated the TPP using his Trade Promotion Authority (TPA) granted by a Republican Congress. TPA defines US trade negotiation objectives which the President needs to follow. In return, the US Congress accepts or rejects the negotiated agreement in its entirety. TPA is intended to give US trade partners some assurance that agreements they negotiate with the U.S. will not be subjected to further requirements in order to gain Congressional approval. Under a Trump Administration, US Congress may be denied the opportunity to take any action at all on trade agreements.

New Trade Agreements under Negotiation:

Several trade agreements were being negotiated in 2016 whose progress will bear watching in 2017. Will they be impacted by the current anti-trade environment?

  • US-EU Transatlantic Trade & Investment Partnership (TTIP) Agreement – The United States and the European Union began negotiations in 2013 with a focus on harmonizing/reducing the regulations and rules that govern trade between these transatlantic trade partners. Brexit and the election of Donald Trump appear to have killed these negotiations, at least in their current form. No appetite currently exists on either side of the Atlantic for continuing discussions.
  • Trade in Services Agreement (TiSA) –50 WTO members are currently negotiating the TiSA to expand on areas covered by and rules of the existing WTO General Agreement on Trade in Services (GATS). The TiSA is a response to the lack of progress on services negotiations as part of the WTO Doha Round. The Trump Administration is more likely to embrace these negotiations. China is not a party, and the United States consistently maintains a healthy trade in services surplus with the rest of the world.
  • Regional Comprehensive Economic Partnership (RCEP) – The ten members of the Association of Southeast Asian Nations (ASEAN) launched these negotiations in 2012. Their goal is to create a free trade area that includes the ten ASEAN members and countries with which ASEAN has a free trade agreement – Australia, China, India, Japan, Republic of Korea, and New Zealand. RCEP negotiations have also assumed greater strategic importance in light of the anticipated pull-out of the U.S. from the recently-concluded TPP Agreement. Eight of the twelve TPP countries are participating in the RCEP in which China will be the largest and most powerful economy.
  • Environmental Goods Agreement (EGA) – WTO plurilateral negotiations among 46 members was launched in 2014 to reduce tariffs on environmentally-friendly good. Negotiations continue in 2017.

Ratification & Implementation of the WTO Agreement on Trade Facilitation (TFA):

The TFA created new rules to streamline customs and ports procedures around the world and contains commitments of technical and financial support for developing countries to help them implement the new rules. The TFA enters into force when two-thirds of WTO members have ratified the agreement. As this post is being written the countdown is on, with entry into force only four (4) countries away.

WTO Ministerial – 11th – 14th December:

 The 11th Ministerial Conference of the World Trade Organization (WTO), and first in South America, will be held in Buenos Aires. The Ministerial Conference is the WTO’s highest decision-making body and meets every two years. The WTO Agreement on Trade Facilitation was a major product of the 2013 Ministerial. The 2015 Ministerial resulted in “the Nairobi package”. What issues will be on the table in 2017? Will the Ministers finally declare Doha officially dead? What next for trade rules and the WTO?

We will monitor and report back on these developments, and more, over the course of the year. Follow us to stay informed.