Well we had to wait all year, but December revealed which list the international trade community was on - there were an awful lot of presents for trade right before the end of the year! Confirmation of Brexit, a modest trade deal with China, a federal budget, and USMCA passage made the final month the most productive one for trade policy of 2019 by far. Progress on all these fronts also sets up one of the more stable trade policy environments we have seen recently, creating a predictable path for the industry in 2020.
The FTZine hopes all enjoyed a break at year end and we look forward to the health and prosperity of all our subscribers in the New Year.
Chinese economic officials announced late last month that they had agreed with the United States on a nine-section trade agreement addressing a portion of the dispute between the two countries. The Trump Administration announced that they expect the so-called ‘Phase One’ deal to be signed on January 15th, and that the Chinese committed to buying more American exports in exchange for rolling back some of the September 15, 2019 (List 4a) tariffs, and eliminating the December 15th tariffs (List 4b). The 25% duties on many goods on Lists 1-3 will remain in place.
Complete details of the agreement have yet to be released, however Chinese imports of American soybeans surged immediately after the deal between the two countries was announced.
Those purchases reduced US trade tensions with Brazil, which has emerged as a formidable competitor to US farmers in international soybean markets. In response the Trump administration relaxed its threat to raise tariffs on Brazilian steel, which is already subject to quotas.
Shortly after announcing the Phase One agreement, China said it would also lower import tariffs on a number of strategic goods starting at the beginning of the year, in a move to support domestic Chinese consumers.
Imports of U.S. soybeans in December rose 53.7% over a year ago to 5.4 million tons, CBP data showed, and they doubled from October to 2.6 million tons, the Associated Press reported.
The agreement with China was announced just before the next round of tariffs on Chinese goods was set to go into effect. The tariffs impacted by the Phase One agreement were largely related to consumer goods, but the tariffs on manufacturing inputs are likely to remain until after the U.S. Presidential election.
That means there is little promise for tariff improvement for U.S. manufacturers, and American manufacturing weakened in December, despite the resolution of a strike at General Motors.
An index published by the Institute for Supply Management dropped to 47.2 in December, the lowest reading since June 2009 and the fifth straight month of contraction. A reading below 50 normally indicates the manufacturing sector is contracting.
According to the minutes of the final Federal Reserve meeting of 2019 “Manufacturing production appeared likely to remain soft in coming months, reflecting generally weak readings on new orders from national and regional manufacturing surveys, declining domestic business investment, slow economic growth abroad and a persistent drag from trade developments.”
This weakness in American factory output has tempered the overall economy, which grew at an annual rate of 1.9 percent in the third quarter. But consumer spending, which now accounts for a much larger proportion of the American economy, has remained robust.
“I think what we’re kind of finding is that the economy can continue to expand with a modest contraction in the manufacturing sector at the moment,” Charles Evans, the president of the Federal Reserve Bank of Chicago, said in a CNBC interview after the meeting. “The consumer is playing a strong role.”
The president of the Federal Reserve Bank of Dallas, Robert Kaplan, said economists at his branch expected some “stabilization” in manufacturing in 2020, though they still expect the sector to look “sluggish.”
“The jury is out on that right now, but my best judgment is — assuming we don’t get new trade news that’s negative — that we’ve got a chance to see some stabilization, and when you combine that with a solid consumer, we could have a solid year of growth in 2020.” he said in a December interview.
With the so many tariff exclusions being awarded retroactively, many importers are filing protests to reclaim duties paid that are now refundable. If you are close to the filing deadline for a protest, it is important to know that protests can be filed in ACE, but the capability is not automatically available. First, if you don’t have an ACE account, you must get one. But even if you do have an ACE account, the Trade Account Owner must request the addition of a Protest Filer Account if this has not already been done. Here are the steps for doing so:
The following steps must be taken by a Trade Account Owner (TAO):
Step 1: From the ACE Portal landing page, select the Accounts tab.
Step 2: In the Task Selector portlet, select “Protest Filer” from the Select Account Type drop down and click “Go”.
Step 3: Under Select Task, choose “Create Protest Filer”.
Step 4: Where prompted, provide your corporate information in steps one through four and submit.
For account identifier you may use your Social Security Number, employer identification number (EIN), or elect to use a CBP generated number
Step 5: Select the refresh button in the Accounts portlet.
Once your account details are refreshed, you will have access to the protest filer account from which you can file a protest, including the attachment of supporting documents.
Brexit is On
The significant majority won by UK Prime Minister Boris Johnson’s Conservative Party during the general election on December 12th brought significant clarity to the prospect and process for Brexit.
What does this mean for FTZ trade with the UK? Almost nothing in 2020, as all the current trading rules now in place will remain in effect during a transition period expected to last the entire year.
Immediately after the new Parliament was seated last month, Boris Johnson was successful in gaining Parliament’s approval for the exit deal he had negotiated with the EU just a few months earlier. This means the UK will have legally left the EU on January 31, 2020, but a transition period under which all parts of the UK will continue to follow EU trade and other rules and contribute to the EU budget will last until December 31, 2020.
The transition is due to end on 31 December 2020 and while Prime Minister Johnson says it will not be extended, the angst over a ‘no-deal’ Brexit is now over and trading rules for 2020 have been established.
Northern Ireland's trading relationship with the rest of the UK will remain as current during the transition.
The UK and EU must now create a framework for their long-term relationship, but without the pressure that the two groups might suddenly find themselves without established trading rules between them.
After Brexit, Northern Ireland will be outside the EU, as part of the UK, while the Republic of Ireland will remain inside the EU. To avoid the need to install a hard border between the Irelands, Northern Ireland will continue to follow EU rules on agricultural and manufactured goods, while the rest of the UK will not.
The treatment of goods moving between Ireland and Northern Ireland has been a significant sticking point in the Brexit negotiations to date, and the UK will need to handle the discussions deftly to avoid the possibility of reviving violence in Northern Ireland. The Prime Minister of Scotland has already raised the possibility that Brexit creates the need for a new referendum vote in Scotland to decide if it should establish independence from the UK and rejoin the EU.
The terms of the actual withdrawal, now scheduled for January 1, 2021, will be overseen by a Joint Committee of the EU and UK; led on the EU side by a member of the European Commission, and on the UK side by a government minister.
One option would be for the UK to adopt a zero-tariff policy for goods from the EU. That would facilitate the movement of goods from one bloc to the other, however, the issue would not be eliminated if the UK and the EU have different tariff polices with third countries.
Another option would be for the UK to adopt EU trade policies en masse, but that would seem to negate the control over its own internal policies that Brexit was supposed to achieve in the first place. This may be a temporary or interim solution however, and provide a longer transition period for the UK and its trading partners.
Such a move would preclude the ability to establish its own free trade agreements with sympathetic countries such as the U.S. So while foreign-trade zones now know the rules for British trade that will be in effect all year, there are significant negotiations that must take place before the rules for 2021 and beyond are confirmed.
House lawmakers voted 385-41 last month to approve the implementing language of the U.S.-Mexico-Canada Agreement, or USMCA. Approval in the Senate is expected, though not assured, sometime after Congress comes back from recess later this month. That would leave only Canada which must ratify the agreement in order for it to take full effect.
Canadian Prime Minister Justin Trudeau had said his plan for USMCA approval was to match the U.S. timetable. Canadian legislators, however, are not due back from a winter break until Jan 27.
“We might - because of our parliamentary calendar - be the last parties to ratify, so we’re going to have to try to get to it as quickly as we can,” Trudeau told Toronto’s Citytv channel.
Another variable in the approval equation is the composition of the Canadian Parliament. Prime Minister Trudeau’s Liberals lost their majority in last October’s general election. That means the ruling party will now need to work more closely with opposition members for USMCA approval.
USMCA modifes NAFTA which was enacted in late 1993 under former President Bill Clinton. Changes requested by the FTZ industry were not incorporated into the US implementing legislation for USMCA. That means the new treaty will have the same prohibitions on inverted tariff benefits and drawback as were contained in NAFTA.
USMCA legislation had been on a back burner for months, but less that a day after making President Trump the third president in U.S. history to be formally impeached, Democratic lawmakers in the House joined with their Republicans and passed the Trump administration's largest trade accomplishment on to the Senate. Timing for passage in the Republican-controlled US Senate is unclear.
Senate Majority Leader Mitch McConnell of Kentucky said that he expects to take up USMCA discussions after the impeachment trial in the Senate. However, House Speaker Pelosi has said she will not send the articles of impeachment to the Senate until her concerns about trial procedures are addressed. The added confusion angered Senate Republicans before the holiday break, and muddled the expected timeline of the Senate's USMCA deliberations and vote.
With just hours to go before funding for the U.S. government expired, President Trump signed a pair of bills that established funding for every agency in the federal government and provide most with a significant funding boost.
The bills authorize spending of $1.4 trillion for the fiscal year ending September 30, 2020; $738 billion for the military and $632 billion for everything else, increases over fiscal 2019 of $22 billion for the Pentagon and $27 billion for non-defense.
The budget agreement was reached after months of negotiations and two continuing resolutions. A critical issue was funding for an expanded wall at the border. While only 0.3% of the entire budget, this one issue divided lawmakers and delayed progress for months. In the end, the President did not get the funding level he requested but is allowed to divert additional funding from other sources in the budget.
These negotiations may just be the tip of the iceberg for the fireworks that may envelop the next set of budget discussions, which will take place just before the 2020 presidential election.
Policy changes in the new budget will impact federal employees, including a 3.1% pay raise for the entire workforce. President Trump said the raise "reflects the excellent work of our federal workforce" and complements the paid parental leave benefit included in the Defense authorization act.
"I am proud to say that our government is leading by example in changing the culture of how we support working families," the President wrote. "Along with the pay raise, the new paid parental leave benefit will help ensure federal employees have the resources and support they need to raise healthy and happy families."
The compromise bipartisan deal averts a repeat of the shutdown that began nearly one year ago, the longest in U.S. government history.
Although the fiscal 2020 bills were approved months after the fiscal calandar actually started on October 1st of 2019, the deal came together with unusual speed.
“A lot of hard work brought this appropriations process back from the brink,” Senate Majority Leader Mitch McConnell said.
The two parties finally struck a compromise to fund the U.S.-Mexico barrier at about $1.4 billion, the major stumbling block.
There are "two timeless truths" about appropriating in a divided Congress, said Senate Majority Leader McConnell. “First, neither side will ever get what they would consider to be perfect bills. But second, full-year funding definitely beats drifting endlessly from CR to CR."
FTZs can breathe easy that there will be shutdowns or spending constraints through the first three calendar quarters of this year.
Well we had to wait all year, but December revealed which list the international trade community was on – there were an awful lot of presents for trade right before the end of the year! Confirmation of Brexit, a modest trade deal with China, a federal budget, and USMCA passage made the final month the most productive one for trade policy of 2019 by far. Progress on all these fronts also sets up one of the more stable trade policy environments we have seen recently, creating a predictable path for the industry in 2020.
The FTZine hopes all enjoyed a break at year end and we look forward to the health and prosperity of all our subscribers in the New Year.