What could the election of Donald Trump and a Republican majority in the U.S. Congress mean for U.S. international trade policy in 2017 and beyond? And what are the potential opportunities and challenges for U.S. importers and exporters? Over the course of the next few weeks, Polsinelli will post a series of articles focusing on the key trade issues that are likely to take center stage in 2017 with the inauguration of Donald Trump as the 45th President of the United States, and the efforts of the 115th Congress.
This article targets the international trade agreements to which the United States is a signatory, such as the Trans Pacific Partnership Agreement (TPP), the North American Free Trade Agreement (NAFTA), and other agreements.
Overview of U.S. Free Trade Agreements
The United States is currently a party to several free trade agreements involving 20 countries including:
- to see the full list of countries, please click here
The oldest free trade agreement is the U.S. – Israel Free Trade Agreement, which has been in existence for over 40 years. Free trade agreements (FTAs) are agreements between two or more countries that are intended to reduce or eliminate tariffs and non-tariff barriers on substantially all trade amongst the parties in order to allow for the free movement of qualifying goods and services in their territories. Goods that are subject to this preferential tariff treatment must satisfy certain FTA-specific rules of origin, which can include tariff shift rules, regional value content requirements, or a combination of the two rules. FTAs also result in significant cost and duty-savings for foreign customers of U.S. products, which make U.S. goods more attractive in foreign markets. In addition, FTAs result in lower costs for U.S. manufacturers that source raw materials, parts and components from FTA partner countries for manufacturing operations performed in the United States. Half of all U.S. exports are currently made to FTA partner country markets. [More...]
Presidential Authority with regard to FTAs
Congress has historically granted broad authority to the President to negotiate, enter and even withdraw from FTAs. The Trade Act of 1974,1 as amended, authorizes the President to negotiate trade agreements with foreign countries focusing on tariff and non-tariff barriers, and the resulting agreements are required to be submitted to Congress for approval. The President currently has what is known as "fast track authority" or "Trade Promotion Authority" (TPA) under which Congress agrees to consider trade agreements and vote on their implementing legislation without making any amendments to the agreements. This expedites the FTA implementation process and assures U.S. trading partners that the negotiated agreement will not be second-guessed or modified by U.S. legislators. TPA was used to pass FTAs between the United States and Colombia, Panama and South Korea. TPA is granted only for certain, limited periods of time, and must be reconsidered and reauthorized by Congress.2 [More...]
The Trans Pacific Partnership Agreement
The Trans Pacific Partnership agreement (TPP), which includes the United States and 11 other countries in the Asia Pacific region (i.e., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and, Vietnam), would be the largest regional free trade and investment agreement ever negotiated. In February 2016, the United States and the various signatory countries signed the agreement and currently have a maximum period of two years in which to implement it into their local laws. If the TPP were to enter into force, import tariffs on more than 18,000 "originating" goods3 traded between the parties would be eliminated. The Obama Administration characterized the TPP as a means for supporting higher paying jobs in the United States, growing the U.S. economy, and countering China's economic expansion. Even if the TPP were implemented into U.S. law, the agreement itself would enter into force only after at least six of the signatory countries (that represent a minimum of 85% of the GDP of all of the participants) have implemented the agreement into their local laws. Many of the signatory countries have already started the ratification process of the TPP under their laws. [More...]
The North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) is an FTA that includes the United States, Canada and Mexico. It was signed into force by former President Bill Clinton on January 1, 1994, and eliminated duties on "originating" goods and non-tariff barriers on goods and services traded between the parties. Key NAFTA provisions included rules of origin, services trade, foreign investment, intellectual property rights protection, government procurement, and dispute resolution. Labor and environmental provisions were included in separate side agreements. It should be noted that subsequent FTAs that were negotiated and implemented by the United States were based on the NAFTA model. According to the 2015 Congressional Research Services report on the NAFTA, U.S. trade with Canada and Mexico more than tripled since the agreement's entry into force. For example: [More...]
Other U.S. Trade Agreements
As noted above, the U.S. is currently a party to FTAs with twenty countries, and the Trump Administration would have the unilateral authority to terminate or withdraw from these trade agreements under the agreements themselves and the Trade Act of 1974, as amended, upon providing written notice to the various parties. The Trump Administration would also have the authority to raise tariffs on goods imported into the United States from those countries. It is anticipated that such actions would draw opposition from many U.S. companies in view of the facts that they have been relying on the preferential tariff treatment afforded under these agreements for many years, and the potential impact of such actions on their supply chains. It is more likely that the incoming President would first seek to review these agreements and their renegotiation before moving to terminate them. [More...]
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For More Information
Stay tuned for our next article. If you have any questions pertaining to the current U.S. FTAs or other international trade issues, please feel free to contact a member of Polsinelli's International Attorneys.
For more information about this alert, please contact a member of Polsinelli's Corporate and Transactional practice, or your Polsinelli attorney.