Looking to the Future of Trade Agreements

Looking to the Future of Trade Agreements

Assessing the Effects of Trade on U.S. Electroindustry

This piece was originally published in the December 2016 issue of electroindustry.

Craig Updyke, Director, Trade and Commercial Affairs

As the U.S. prepares for a new president and Congress, international trade agreements appear to face a daunting future.

President-elect Donald Trump and congressional leaders have expressed opposition to action to approve and implement the Trans-Pacific Partnership (TPP) agreement. The eleven TPP partner countries face their own domestic challenges to approve the agreement. Similarly, final European Union approval of its free trade agreement with Canada, the Closer Economic Partnership Agreement (CETA), remains uncertain while EU trade negotiations with the U.S. are effectively suspended.

Mr. Trump has pledged to withdraw the U.S. from and renegotiate the North American Free Trade Agreement (NAFTA).

As NEMA President and CEO Kevin Cosgriff noted in a recent open letter to the new president and Congress,

[w]ell-negotiated, equitable, and enforceable U.S. trade agreements enable U.S. companies—large, medium, and small—to access, compete in, and serve a growing foreign market. Trade agreements that remove unjustified barriers to trade…and otherwise lower export costs are important to the business aspirations of American companies to participate in overseas markets.

As one tool to enhance competitiveness of U.S. manufacturers and service providers, trade agreements follow, direct, and enable rising values of exports, imports, and investment. The following are brief summaries of a few key issues for the electroindustry in the coming trade policy debates.

Tariffs

The original meaning of “free” in free trade referred to the elimination of customs duties, also known as tariffs. These are taxes added to the cost of imports, as revenue for the federal government. U.S. tariffs have been steadily reduced over decades of global trade agreements, as well as bilateral and regional arrangements like NAFTA.

Although U.S. tariffs on electroindustry products are currently low and all U.S. tariff levels are “bound” by global trade agreements, threats of tariff increases have been broached as leverage against Mexico and China, two of the U.S. electroindustry’s top three trading partners. Meanwhile, tariffs remain high in China, Brazil, and India. Tariffs raise costs for companies and consumers, which is why NEMA favors tariff elimination for products within the association’s scope.

The World Trade Organization’s Environmental Goods Agreement (EGA), which would eliminate tariffs on a series of NEMA products, was scheduled to be concluded mere days before publication of this issue.

Technical barriers to trade

Beyond tariffs, free trade is almost a misnomer for a government-to-government agreement to open their markets, since each agreement includes many rules and disciplines to be followed. Many of these disciplines are intended to minimize technical barriers to trade such as regulations, technical standards, and conformity assessment requirements.

Agreements often include commitments for governments to confer and cooperate to minimize regulatory burdens without compromising pursuit of their regulatory goals such as worker safety and consumer and environmental protection.

Rules for new trade

In a recent article for Harvard Business Review, Georgetown University Professor Marc L. Busch argues that companies often overlook “non-market strategy”, which he explained as “using and shaping the rules of global commerce, such as trade agreements, through legal and political means.”

Trade agreements are intended to provide predictability, lower risks, and thereby stimulate business transactions. The TPP agreement includes rules for issues that are important for the present and future of trade, including supply chains, digital trade, and advanced manufacturing. These commitments include facilitating flows of digital data across borders, barring forced technology transfer, protecting intellectual property (including source code), preserving market-driven standardization, accommodating value added in different locations, and setting disciplines on competition from state-owned companies.

Enforcement and dispute settlement

What happens when trade agreement commitments are not kept? Companies or workers suffer, complain of ill treatment, and appeal for relief. If the foreign government does not provide a solution, the complainant often turns to their home government to request initiation of dispute settlement proceedings. These can result in retaliation, in the form of tariff increases, to exact an equivalent level of pain on the partner country’s businesses, which may be passed to consumers.

With a presidential emphasis on better enforcement of U.S. trade agreements, the coming years could bring more debates about whether trade deals are made to be broken.

Read the December 2016 issue of electroindustry.

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