By Cameron Peek

Photo: Brexit Text License: Editorial Use OK

Following the conclusion of phase one (“the divorce”) of the Brexit negotiations last December, the United Kingdom and the European Union have officially entered phase two of the negotiations, discussing the framework for the UK-EU future relationship and deciding the arrangements necessary during the period transitioning to that relationship. Frustrated that the discussions have produced few concrete ideas of what this future relationship would look like, two weeks ago the EU’s chief negotiator, Michel Barnier, told UK leaders that the time had come to make a choice — will the UK be in or out of the EU customs union? Responding to growing concern within the Conservative Party that she might bend to opposition pressure, last week UK Prime Minister Theresa May made her position clear; the UK will “categorically [be] leaving the customs union.”

A Refresher on Customs Unions

A customs union is a type of trading block that unifies the tariff policy of all members. Customs unions are defined by two key features: 1) a free trade area between members (members do not charge duties on goods imported from other members) and 2) a common external tariff (any goods imported from non-member countries are charged the same import tariff, regardless of which member country the goods enter the union). Here, we should distinguish the EU customs union from the EU single market. The customs union unifies external tariffs, but the single market is what allows the free flow of goods, services, people, and capital. Thus, it is possible to be in the single market, but not the customs union (like Iceland, Liechtenstein, Norway and Switzerland), or be in the customs union, but not the single market (like Andorra, San Marino and Turkey).

May’s Position and the Way Forward

Leaving the customs union risks seriously disrupting the lion’s share of UK trade. The EU is the UK’s largest trading partner, comprising 43% of all UK exports and 54% of all UK imports. Exiting the customs union will put up new tariff barriers, depriving UK-EU traders of the duty-free access they currently enjoy. On the other hand, leaving the customs union would allow the UK to escape the confines of the common external tariff, thereby making it possible for the UK to implement its own tariff policy and negotiate its own trade agreements with non-EU members. As the EU itself has recognized that 90% of global growth is expected to come from outside the EU, this could be a worthwhile tradeoff for the UK.

Still, May is holding on to hopes of both having her trade cake and eating it too. In August of last year, May’s trade team released a “future partnership paper” outlining what is still the UK’s stance for negotiating the future UK-EU trade relationship. Most notable from the paper was the proposition of a “customs partnership.” Under this scheme, the UK proposed that it would synchronize its import policies for intermediary goods brought into the UK that are part of a supply chain for final consumption in the EU. Thus, for American widgets meant to be consumed in the UK, the UK could charge x%; but if those same American widgets were to be used in other products that would eventually be shipped to the EU, the UK would be charge the EU rate, y%.

Unfortunately for May, EU officials are underwhelmed at the idea, calling the UK’s proposal for a customs arrangement “unrealistic.” Even more doubtful is whether such an arrangement would comply the WTO’s non-discrimination principles. As the negotiations proceed, the UK will need to be warry not to compromise its obligations to the world trading system in the hopes of maintaining current access to the EU market.

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February 15, 2018

By Alexandra Moffitt

This week, a fourth round of negotiations begin in Ottawa as the United States, Canada, and Mexico meet to renegotiate the North American Free Trade Agreement (NAFTA). NAFTA covers issues of customs, government procurement, and intellectual property rights, among others. Millions of Americans depend on NAFTA every day directly and indirectly. On October 5^th, the Atlantic Council released a report entitled “What if NAFTA ended? The Imperative of a Successful Renegotiations” and held an event on the topic. Following keynote remarks from Representative Will Hurd and the Honorable Bill Zoellick, the drafters of the Atlantic Council report and Mr. Zoellick held a roundtable discussion of the effects of NAFTA and the importance of maintaining the agreement. The atmosphere framing the discussion are President Trump’s anti-NAFTA remarks in recent months.

In his keynote, Congressman Will Hurd, a Member of the U.S. House of Representatives from Texas, said, “sometimes we forget to talk about things we take for granted.” He stressed that NAFTA created North American competitiveness in the world, and that a lot of Americans do not know that Mexican companies create jobs in the U.S. He underscored the importance of keeping NAFTA for the economic benefits.

Former U.S. Trade Representative Bill Zoellick indicated that there were serious risks and huge implications if NAFTA were lost. NAFTA is a continental base for the 21^st century, which connects three democracies and 500 million people. NAFTA allows the three countries to better compete in the global system. Zoellick said, “bilateral trade deficits are negative trade income” to President Trump, which Trump equates to losing.  Zoellick called this “economic nonsense.” NAFTA negotiators are trying to push other countries to open their markets, and remove exemptions, while removing obligations from the organization.    

After Mr. Zoellick’s remarks, the event transformed into a panel discussion of the NAFTA renegotiations with Phil Levi, Daniel Schwanen, and Javier Mancera serving as experts for the United States, Canada, and Mexico respectively. Each of the three drafted sections of “What if NAFTA ended? The Imperative of a Successful Renegotiations.” Phil Levi said there is a lot of uncertainty surrounding NAFTA. After President Trump’s Executive Order on NAFTA, businesses and agriculture came out against it. Mr. Levi cautioned that the most difficult issues in the NAFTA renegotiation have not been discussed yet.

Javier Mancera indicated that Mexico is looking to add new chapters rather than renegotiating previously decided ones. Because Chapters 11 and 19 of NAFTA each provide for a private right of action pursuant to violations, these chapters are immensely important to Mexico. Mr. Mancera mused that it was surprising that American Republicans would want to remove that clause. Daniel Schwanen stressed that Canadians have a consensus that trade helps the country. This feeling of goodwill towards international trade buoys Canada’s stance on NAFTA.

The most captivating moment of the discussion came at the end. Panelists were asked what percentage they gave that President would pull out of NAFTA. The panelists gave their percentages as 50%, 50%, 40%, and more than 50%. These percentages from experts in the field offer a chilling picture for the future of NAFTA. North America’s competitiveness in global trade are at a turning point. Will President Trump jeopardize North America’s status in the world?

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October 14, 2017

By Victoria Hines

Brexit, a reference to the possibility of Great Britain leaving the European Union (EU) upon a referendum, has recently been at the forefront of the news cycle.  The passage of the European Union Referendum Act of 2015, allowing for a referendum on whether the UK should remain in the EU, has ignited a debate on the desirability of continued EU membership. UK Prime Minister David Cameron conducted negotiations in Brussels last week to try to encourage European leaders to support his EU reforms before the projected June 23 referendum. These objectives, which Cameron outlined last November, included: acquiring insurance that the Eurozone countries are not able to manipulate financial regulations for non-euro nations, reducing red tape on European businesses, enhancing national parliament power by exempting Britain from an “ever closer union,” and controlling migration. This deal, which gives Britain “special status” in the EU, is now being used by Cameron to assemble support for the UK to remain in the EU.   

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March 11, 2016

By Alex Yeager

In the category of “things you can’t believe are still legal,” President Obama signed a provision on Wednesday that finally closed a trade loophole allowing the importation of goods made by child and forced labor.  The loophole, which originated from the U.S. Tariff Act of 1930, allowed goods procured by these means to be imported as needed by U.S. consumer demand.  The provision allows other bans on these materials to have more binding force, and will prevent the importation of products such as fish caught by slaves in Southeast Asia, and gold mined by children in Africa.

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March 03, 2016

By Justin Kirschner

The US trade deficit widened in December as exports hit a four-year low, according to numbers released on February 5. The trade gap rose 2.7% in December to $43.4 billion, up from the newly-revised November deficit of $42.2 billion. December exports were $181.5 billion, the lowest monthly total since January 2012. Why the recent tumble? It's likely because of a generally weak global economy coupled with a strong dollar that made American goods and services comparatively more expensive on the global market. With the Federal Reserve likely to gradually increase interest rates, and the Fed’s foreign counterparts likely to push their domestic currencies in the opposite direction, the stronger US dollar will likely make US goods and services more expensive overseas throughout this year.

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February 16, 2016

By Shannon Togawa Mercer

The WTO Appellate Body recently supplied us with a new development in the ever-interesting string of U.S.-Tuna trade decisions. After the appellate body’s 2012 ruling against a U.S. measure, in what is affectionately known as U.S. – Tuna II (Mexico), the U.S. was tasked with bringing its measure into conformity with WTO obligations. The Appellate Body recently reviewed U.S. revisions and found them lacking.  Some background: In 2009, Mexico challenged a U.S. “dolphin safe” labeling scheme before the WTO. The U.S. measure only allowed the “dolphin safe” label to be placed on canned tuna sold in the United States that was not the product of a suspect tuna fishing method called “setting on dolphins.” That said, the regulation only required certification of dolphin safety in the Eastern Tropical Pacific (ETP) region, functionally allowing all tuna caught by outside of the ETP to carry the dolphin safe label.  The Appellate Body took issue with the regulation under the Technical Barriers to Trade (TBT) agreement Article 2.1: First, the labeling measure had “a detrimental impact on the competitive opportunities of Mexican tuna products in the U.S. market” given that the majority of Mexican fishermen fished in the ETP; secondly, the regulation did not “even-handedly” address the risks to dolphins “arising from different fishing techniques in different areas of the ocean.” After this decision, the U.S. revised the US Dolphin Protection Consumer Information Act and implementation regulations with a new substantive requirement that other tuna products outside of the ETP get captain certification that “no dolphins were killed or seriously injured.” Vessels in the ETP are still required to provide higher levels of certification and more cumbersome documentation. The WTO found that the amended measures continue to violate the non-discrimination requirements of the TBT agreement.  

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December 04, 2015

By Shannon Togawa Mercer

In an era during which the exchange of intellectual property across borders can carry just as much, if not more, value than conventional goods, the protection of intellectual property rights is now a matter of international concern. Whereas much of the WTO treaty regime is focused on the liberalization of trade barriers for goods and services, the protection of intellectual property rights through the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement involves affirmative obligations to restrict the flow of ideas in order to protect the rights of an individual to his or her intellectual property.

It makes sense that an organization of nations interested in trade liberalization would concern itself with the movement of ideas: adequate protection of intellectual property can impact trade flows. If a seller knows that her ideas will not be pirated in a purchasing country, she will be more encouraged to sell there. Furthermore, if an innovator knows that he will reap the profits from his inventions, he is more likely to innovate – thus incentivizing businesses’ R&D.

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November 20, 2015

By Alex Yeager

Nearly a year after President Obama’s pronouncement of a goal to normalize trade relations with Cuba, minimal progress has been made on a path towards tangible trade growth.  To be fair, some real steps have been taken; most recently, the Obama administration issued regulations in September aimed at making it easier for U.S. companies to establish subsidiaries and do business in Cuba.  And, regulations regarding U.S. travel to Cuba have also been dramatically loosened.

But overall, what are the real trade effects as of now?  Virtually none.  In fact, aggregate trade numbers have actually dropped between the two countries in the time since President Obama’s proclamation.  Officials on both sides maintain that the long-standing embargo is still severely hampering any trade progress between the nations.  Some disagreement exists as to whether this is really the biggest hurdle, but it seems fairly intuitive that a trade embargo is not conducive to free trade between neighboring nations. 

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November 16, 2015

By Abbie Schepps

China’s expanding presence and influence is most evident in Latin America. At an all time astonishing rate, Sino-Latin American trade is up 2000% over the past 15 years, making China the leading trade partner and top foreign direct investor of the region. Chinese investment has its hands all over the region, providing a $5 billion loan to Venezuela and investing $20 billion to Peru copper mines, among other investments.

There is nothing outright negative about China’s involvement on the continent, but it is in everyone’s interest to ensure that these deals with China are fair. In order to promote a long-term development agenda, Latin America countries need to band together to pursue a more strategic and institutional approach to engagement with China. Left unchecked however, lasting negative effects could occur. In 2014, Argentina’s exports to China were primarily products like soybeans and oils. Without the overall pursuance of a development strategy, the region may face gradual deindustrialization.

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October 28, 2015

By Justin Kirschner

On Monday, October 5, the United States and eleven other nations representing forty percent of the global economy and a third of global trade agreed to the Trans-Pacific Partnership, the largest regional free trade agreement in history.  The TPP lowers trade barriers for the twelve members in the agriculture, pharmaceutical, automobile and textile industries, just to name a few.  It also imposes strict environmental, labor, intellectual property and cross-border data flow standards.  China, notably, is not part of the deal.  Though some see the TPP as a geopolitical effort to balance China’s rise, that view has softened to a point where Pacific-rim leaders, including those in the U.S., leave the door open to China’s accession.

Now that the deal has been inked, each country must approve the TPP through its own domestic political mechanism.  In the U.S., pursuant to the Trade Promotion Authority Congress granted the president, Congress and the public will have 90 days to consider and debate the deal, at which point Senators and Representatives will vote up or down without the ability to amend.  With the presidential campaign in full swing, and support for, or opposition to, the deal already making strange political bedfellows, the TPP is likely to be put through the political wringer before a vote happens in early 2016.  For now, the deal stands as a seminal achievement in President Obama’s much-heralded pivot to Asia.

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October 14, 2015

By Shannon Togawa Mercer

In his Saturday address to the United Nations General Assembly, Cuban President, Raul Castro, highlighted the continued detrimental impact of the U.S. Trade Embargo. Castro estimated an aggregate $121 billion in damages to the Cuban economy. While President Obama has taken steps to liberalize trade, only Congress can lift the embargo. The U.N. General Assembly has urged the U.S. to end the embargo on an annual basis since 1992, when it adopted a resolution expressing its disapproval. The General Assembly isn’t alone. Companies such as Cargill, Proctor & Gamble, Caterpillar, Shell Oil and Chevron are lobbying Capitol Hill for further liberalization. Surprisingly, of all the horses in this race, Arkansas’ is chomping at the bit. Governor Asa Hutchinson, in anticipation of the decreased trade barriers and availability of financing opportunities, hopes to increase Arkansas’ agricultural exports to Cuba. He travels to Cuba today as a part of a trade mission.

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October 14, 2015

By Justin Kirschner

After protests in Brussels that included hundreds of tractors, burning hay and cowbells, EU farmers are set to get a €500 million relief package aimed at backstopping the agriculture industry against falling prices.  Prices plummeted, Bloomberg News reports, in part because of a Russian ban on many European food exports, including pigmeat.  Within the swine sector, there’s a whiff of cautious optimism that the WTO dispute between Russia and the EU over Russia’s pigmeat ban will soon be settled.  Britain’s National Pig Association, a trade group of commercial pig producers, reports that a “mutually agreed outcome” may come before the end of the year.

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September 17, 2015

By Justin Kirschner

China must tread carefully in managing their recent currency devaluation or else they could start a trade war says Bruce McCain, Chief Investment Strategist for Key Private Bank. The chance of China setting off a chain reaction of retaliation is not great, McCain predicts, because China is moving towards a more market-based, less arbitrarily pegged currency value.  That will seem fairer to its trading partners, he argues, who also let their currency values float. But retaliation may nonetheless be in the cards.  With many countries holding excess export capacity with China, home to a market of eager potential consumers, other countries may deploy economic antidotes to China’s devaluation in order to realize their own export potential.

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September 15, 2015

By Jeff Najjar

A World Trade Organization (WTO) panel has ruled that India’s federal solar program violates global trade rules by imposing local-purchase requirements for solar cells and modules. Additionally, the panel ruled against India’s incentive policies for domestic solar companies to manufacture solar cells and modules in the country. The Indian government plans to appeal and the WTO dispute settlement body will review the report of the panel at its next meeting. After the appeal, the WTO is expected to deliver a final report in November. India will then have two months to make its case to the appellate body of the organization. This is the second case that India has lost to the U.S. at the WTO this year. Removing the local content requirement would increase competition and open up opportunity for foreign companies to increase their presence in the Indian solar market.

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September 15, 2015

By Craig Tarasoff

Over the past few months, the United States and Cuba have taken great strides to normalize their relationship. On December 17, 2014, U.S. President Obama and Cuban President Raul Castro announced that they would be lifting many of the decades-old restrictions between the two countries. After 54 years, some of the hostility and separation between US and Cuba may be heading toward an end. At the very least, by easing some of the travel and commerce restrictions, the two nations can distance themselves from the rigid policies of the past half-century. 

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April 24, 2015

By Craig Tarasoff

As Ethiopian Airlines continues its expansion, Africa is seeing an increase in trade not only within the continent, but also in the global economy. The lack of transportation options in Africa has caused a trade deficit far below that of other regions. However, this is about to change. Ethiopian Airlines is in discussions to set up national airlines in Nigeria, Uganda, South Sudan, the Democratic Republic of the Congo, and Rwanda. Find more details at the National Law Review’s website.

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April 23, 2015

By Jieying Ding

Delaware, the birthplace of the American chicken industry, has taken on a trade battle against South Africa for imposing tariffs on American chickens, reported by The New York Times. As a result, American politicians led by Senator Johnny Isakson are threatening to exclude South Africa from a trade partnership. In response, South Africa contends that the U.S. is simply trying to dump chickens to South Africa. Well, no matter who has the better argument, this dispute happens in a bad timing for President Obama as he is pushing for an aggressive trade agenda in Congress. 

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March 10, 2015