2021 Trade Update: Uncertain global scenarios bear watching

With the United States-Mexico-Canada Agreement (USMCA) finally resolved in North America, the vast majority of hemispheric trade will continue duty free. Indeed, much of the new agreement has been to standardize and modernize customs procedures throughout our continent to facilitate the free flow of goods.

But now U.S. shippers will be closely tracking ongoing regulatory issues with China and Southeast Asia, as well as the looming showdown between the United Kingdom and the European Union over Brexit.

Essa Al-Saleh, CEO and president of Agility Global Integrated Logistics, is one of many industry leaders coming to grips with the current state of uncertainty. “Producers, shippers, forwarders and carriers find it impossible to plan, forecast and make decisions in an ever-shifting climate of tit-for-tat tariffs and volatile fuel prices, not to mention new protectionist measures, sanctions and compliance rules taking place at this time,” he says.

However, Al-Saleh notes that in a welcome development, the U.S.-China trade battle has cooled with the signing of an agreement that puts off additional tariffs…at least for now. “At the same time, manufacturing has shown recent signs of stabilizing and picking up in the Philippines, Thailand, Malaysia, India and China,” he adds.

According to Panjiva, a global trade intelligence firm, the Trump administration is also close to beginning a section 301 trade review of Vietnam’s currency practices. “This is the same type of investigation used against China and has been reported at various times for more than a year,” says Chris Rogers, research director for the firm. “While the Treasury Department has not declared Vietnam to be a currency manipulator, President Trump has previously done so unilaterally with China. The case is unlikely to be completed before the end of 2020.”

The U.S. trade-in-goods deficit with Vietnam, a major motivator of administration policy, has surged to $58.3 billion over the past year from $32.3 billion as manufacturers have moved to Vietnam from China. The biggest dollar contributors have been a 26.6% compound annual growth in mobile phone and network device shipments, a 54.2% increase in solar panels, and a 21.7% rise in furniture shipments.

Panjiva’s outlook for European supply chains in the wake of COVID-19 and ahead of the U.S. elections and Brexit, also contains implications for U.S. logistics managers. “EU trade has underperformed the global average with an 11.3% drop in exports in July being driven by lower shipments to the U.K. and United States,” researchers note.

“Future trade relations with the United States will vary greatly depending on the outcome of the U.S. elections,” says Rogers. “A Trump win may mean more tariffs due to digital services taxes and carbon border duties, while a Biden administration could lead to a wide-ranging trade deal, but not immediately. WTO reform is possible under either U.S. election outcome, but is a long way off.”

An EU-U.K. trade deal is unlikely to be reached before the end of the year, with serious consequences for supply chains, Rogers and the Panjiva team add. The EU-Mercosur states (Argentina, Brazil, Paraguay and Uruguay) trade deal is likely to fail to reach ratification due to French concerns over Brazilian environmental policy, making for a lost opportunity for the autos sector.

Meanwhile, MIT professor Yossi Sheffi notes that the relationship between Great Britain and the EU continues to deteriorate. “Forget the pending tariff disruptions for a moment,” he says, “and consider what’s happening now with border inspections. Trucks are in mile-long gridlocks for inspections, and there’s no relief in sight. This is a Black Swan event waiting to happen.”

Tariffs still hurt

For Beth Pride, president of BPE Global, an international trade and logistics company, USMCA merely represents “NAFTA 2.0,” which she opines was pushed through by the Trump Administration as a symbolic achievement.

“Although the agreement wasn’t substantially different from NAFTA, it was a significant challenge for the trade community to implement new processes, procedures and make systematic changes in less than 60 days, with the final instructions being published less than 24 hours prior to the trade agreement going into effect,” says Pride.

Pride also observes that the biggest issue that companies faced was that the tariff schedule with the new Rules of Origin wasn’t published until the very last moment. “This resulted in quite a scramble for importers, exporters and software developers,” she says. “Because USMCA is so similar to NAFTA, companies were to get USMCA certifications and make the necessary changes to their operations relatively quickly. As of this writing, the program is functioning and companies are able to take advantage of this free trade agreement.”

At the same time, says Pride, global trade practitioners have been developing Brexit strategies as early as 2015. “It’s impossible to make perfect plans without the regulations to base your plans on,” she says. “I feel confident that most companies have done their best to prepare, but we’ll see what happens as the actual rules are developed and implemented.”

Above and beyond USMCA and Brexit, the biggest challenge for importers and exporters by far are the Section tariffs and retaliatory tariffs that are being placed on American goods, Pride concludes. “The tariffs continue to hurt American companies and consumers, and there’s very little likelihood that they’ll go away if Trump is reelected,” she says. “American companies desperately need relief, and removing the tariffs would be a huge salve to companies struggling during the pandemic and this economic crisis.”

“Green” issues

Even as logistics managers make changes to respond to business challenges posed by the pandemic, executives and trade compliance team leaders must protect their company and employees by continuing to deal with critical U.S. international trade laws and regulations—including those addressing the environment.

According to Alan Wolff, deputy director-general of the World Trade Organization (WTO), “green” issues are woven into the history of the multi-
lateral trading system.

“But the role of trade and the WTO on the environment is complex, and, as a result, it’s not always well understood,” says Wolff. “One big reason is the pandemic, which has pushed environmental issues up the local, national, regional and global policy agendas. The current crisis calls for a collective response on trade that fosters sustainability, inclusiveness and resilience.”

To correct serious misperceptions about the implications of WTO rules for environmental action, the organization has recently published a booklet titled “Short Answers to Big Questions on the WTO and the Environment” that explores trade’s impact on the planet and the policies that governments enact to protect it.

In the paper, Wolff advises U.S. logistics managers to acquaint themselves with the complex legal questions that have come up in some environment-related WTO cases. Following are a couple key takeaways that he suggests taking under consideration.

  • In environment-related WTO cases, the environmental goal was never the issue. Instead, the disputes focused on the protectionist and arbitrary aspects of the measure. Those protectionist aspects may in fact have worked against the goals of the measure in question by preventing trade from playing its full role in promoting the most efficient solution to a given environmental challenge.
  • In line with this, WTO cases have shown that WTO members have the freedom to differentiate between polluting and greener products. There is one caveat: in doing so, they must avoid unjustifiable or arbitrary discrimination.

“Calls for ambitious action to safeguard our environment are growing louder by the day,” says Wolff. “At the same time, the pandemic has put huge additional strains on the global trading system and our economies.”

Wolff tells his constituents to continue tracking how trade tensions are on the rise and how continued escalation risks are having a major economic impact. “How we respond will be crucial because a strong and effective global trading system needs to be a key part of the global response to the pandemic and efforts to build back greener and better,” he concludes.

Why should you care about free trade agreements (FTAs)?

For logistics managers seeking to export their products or service in 2021, the U.S. may have negotiated favorable treatment through a free trade agreement (FTA) to make it easier and cheaper for you.

And while accessing FTA benefits for your products may require more record keeping, the move might be able to provide a competitive advantage over other countries.

According to the International Trade Administration (ITA), U.S. FTAs typically address a wide variety of government activity. One example is the reduction or elimination of tariffs charged on all qualified products coming from the other country.

For example, a nation that normally charges a tariff of 5% of the value of the incoming product will eliminate that tariff for products that originate (as defined in the FTA) in the United States.

Documenting how a product originates, or meets the rules of origin, can make using the FTA negotiated tariffs a bit more complicated. However, these rules help to ensure that U.S. exports, rather than exports from other countries, receive the benefits of the agreement.

According to the ITA, some other types of opportunities frequently found in FTAs include:

  • the ability for a U.S. company to bid on certain government procurements in the FTA partner country;
  • the ability for a U.S. investor to get prompt, adequate, and effective compensation if its investment in the FTA partner country is taken by the government (expropriated);
  • the ability for U.S. service suppliers to supply their services in the FTA partner country;
  • protection and enforcement of American-owned intellectual property rights in the FTA partner country; and
  • the ability for U.S. exporters to participate in the development of product standards in the FTA partner country.

Currently, the U.S. has 14 FTAs in force with 20 countries, and is currently in the process of negotiating regional FTAs with several others. With USMCA a done deal and the fallout from Brexit yet to be measured, trade analysts are encouraging shippers to explore all of these FTA options.

About the Author

Patrick Burnson, Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]