Trump and forced localization

With help from Doug Palmer and Adam Behsudi

TRUMP AND FORCED LOCALIZATION: Donald Trump’s plans for Apple’s iPhone could represent everything he doesn’t know — or doesn’t acknowledge — about modern trade, critics say. The billionaire mogul boasts repeatedly of the jobs he’ll create by forcing Apple to bring manufacturing back from China. And he’s just as pugilistic about dealing with Beijing, with brash threats of a trade war over the mounting trade deficit with the Asian powerhouse.

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“We have a lot of power over China, we just don’t know it,” he said recently at Regent University, an evangelical school in Virginia Beach. “The power is trade. We’ve rebuilt [China]. They are taking so much money out of our country. What they’ve done, and I say it, it’s the greatest robbery in the history of the world … and we have to stop it.”

The Republican front-runner’s trade proposals resonate with supporters in the working class and elsewhere, who blame trade deals going back to the North American Free Trade Agreement for decimating U.S. manufacturing and causing a severe trade imbalance.

But trade experts and economists worry that Trump’s plans, which would also target Ford Motor Co. and other companies for moving jobs to Mexico, would roll back decades of trade liberalization, raise costs for consumers and force companies to rejigger global supply chains connecting products like the iPhone to workers all over the world. Stay tuned for the full story from Pro Trade’s Doug Palmer.

IT’S WEDNESDAY, MARCH 9! Welcome to Morning Trade. Today, the Barbie doll turns 57, and she certainly has changed: Apparently the first Barbies were manufactured in Japan, prompting your host to wonder what the current supply chain for the dolls looks like. If you have any idea, let me know: [email protected] or @vtg2.

SAY CHEESE: U.S. DAIRY ENDORSES TPP: The U.S. dairy industry on Tuesday joined the ranks of agricultural lobby groups that support the Trans-Pacific Partnership, ending months of uncertainty that have helped cloud the outlook for the agreement in Congress. “Although it achieves less than we wanted in terms of throwing open new markets in Japan and Canada, I am particularly pleased that we did not concede to a huge surge in new imports,” Jim Mulhern, president and CEO of the National Milk Producers Federation, said in a statement.

Under TPP, Japan can keep its state-owned trading company that regulates dairy imports but is required to establish a quota for imports of powdered skim milk and butter. Tokyo is also keeping tariffs on certain cheeses, such as mozzarella and camembert, but cheddar, gouda and cream cheese will see tariffs eliminated in 16 years. Processed cheeses will be subject to small country-specific quotas. Meanwhile, Canada was able to keep in place the fundamentals of its supply management system, which sets controls on imports, production and pricing for the country’s dairy, poultry and egg sectors.

NMPF’s board said the weak TPP market access package should not be used as a template for future U.S. trade agreements, such as the Transatlantic Trade and Investment Partnership with the European Union. But Mulhern hailed TPP provisions intended “to knock down other trade barriers, such as food safety disputes, and to challenge the growing number of restrictions limiting trade of foods with commonly used names such as parmesan.”

Agriculture Secretary Tom Vilsack proudly touted the endorsement, citing a report from the American Farm Bureau Federation that found TPP would increase net income for America’s farmers and ranchers by roughly $4.4 billion. “Without the TPP agreement, U.S. dairy product exports to the TPP region face a competitive disadvantage,” he said in a statement.

SENATORS CALL FOR FINSERV FIX: But the administration still has its work cut out in building political support for the Asia-Pacific deal. A bipartisan group of 14 senators criticized the Obama administration this week for the failure to protect financial services firms from data localization policies in TPP and called for a fix in that deal and a better approach in other pending negotiations.

In a March 7 letter led by Kelly Ayotte and Tom Carper, the senators called on the administration to “address gaps in the current approach and adopt a single approach going forward,” specifically referencing the Transatlantic Trade and Investment Partnership, the Trade in Services Agreement and the U.S.-China bilateral investment treaty.

TPP’s prohibition on forced data localization does not cover financial institutions, a move Treasury Secretary Jack Lew has defended as necessary for U.S. regulators to oversee the financial sector. But the administration has increasingly expressed a willingness to try to address industry concerns in some way, according to financial services industry sources. Click here to read the letter:

The clock is ticking? The Securities Industry and Financial Markets Association is holding an event in Washington on April 28 titled, “Financial Services and the Future of Trade and Investment,” billed as an event about TPP, TTIP and the BIT. How the administration handles the data issue in the next month and a half could set the tenor of that event, which will be hosted by Covington and Burling.

OBAMA-TRUDEAU AGENDA INCLUDES LUMBER, CUSTOMS, TPP: Morning Trade told you trade would be on the menu for Canadian Prime Minister Justin Trudeau’s visit Thursday, and a White House official said Tuesday that Trudeau and Obama will have multiple commercial issues to digest.

The two sides will talk about replacing their bilateral Softwood Lumber Agreement, which governed lumber trade between the two countries for nearly a decade and expired late last year. That means the Canadian industry could now face U.S. trade remedy investigations over alleged subsidization. Mark Feierstein, senior director for Western Hemisphere affairs at the National Security Council, said on a call with reporters that he wouldn’t put a timeline on when a new arrangement might be reached. But he noted that the administration is “open to exploring all options.”

Other issues in the oven: A possible expansion of the pre-clearance agreement signed in March 2015 and, of course, TPP. Trudeau’s government is still undertaking a review of the Asia-Pacific pact, negotiated by the previous government, and Feierstein said the administration was respectful of the consultative process that was underway in Canada.

NAM’S CANADA CHECKLIST: Meanwhile, the National Association of Manufacturers urged both governments to work on resolving outstanding TPP concerns and to take other steps to facilitate trade across the border, such as increasing regulatory cooperation and enhancing “trusted trader” programs. NAM also called on Canada to exempt more small shipments of goods from customs processing and tariffs by raising its “de minimis” level, which is currently set at just C$20 for online purchases. Sens. Richard Blumenthal, Chris Murphy and Ron Wyden also recently asked the administration to press Trudeau on that point, noting the recently passed customs bill raised the U.S. de minimis level to $800.

BREXIT: BREAKING UP IS HARD TO DO: POLITICO Europe’s Hortense Goulard on Tuesday sifted through five options for how the United Kingdom might trade with the European Union if it decides to leave the bloc.

Option 1: Join the European Free Trade Association and then enter the European Economic Area, like Norway, Iceland and Liechtenstein have done.

Option 2: Follow the Swiss example and sign a bilateral trade deal on top of the EFTA. However, “striking an agreement like the one Switzerland has with the EU would take years to negotiate,” Alberto Alemanno, a professor for EU law and risk regulation at the business school HEC Paris told Goulard.

Option 3: Enter a customs union, à la Turkey. But this would only secure limited access to the single market, and the UK would still need to apply EU laws to areas covered by its own customs union, again without having a say on those rules.

Option 4: Join the EU-Canada deal, which hasn’t yet been signed.

Option 5: In the immortal words of Frozen’s Queen Elsa: Let it go. “An option that no one seems to consider seriously, not even the Euroskeptics, is simply to trade with the EU within the framework of the WTO,” Goulard writes. “However, if the UK decided to do so, it would need to strike its own trade agreements with third countries.”

UK trade with the EU accounted for 45 percent of exports and 53 percent of imports of goods and services in 2014, and more than three million jobs are linked to exports to the EU, according to a House of Commons report.

Read the full article here:

ICYMI: U.S. SANCTIONS CHINESE TELECOM GIANT: The Commerce Department’s Bureau of Industry and Security on Tuesday slapped sanctions on ZTE, China’s second-largest telecommunications company, for allegedly setting up shell companies to ship equipment made with U.S. parts to Iran and potentially other restricted countries.

The announcement, published in Tuesday’s Federal Register, adds the smartphone producer and its three shell companies to the bureau’s “entity list.” U.S. companies that supply parts to the telecom giant will now have to apply for a license to export, reexport or transfer any product subject to export control restrictions. The U.S. government usually denies licenses to export to foreign companies on the entity list.

Beijing denounced the decision on Monday. “The Chinese side is firmly opposed to the U.S. using domestic laws to place sanctions on Chinese companies,” Foreign Ministry spokesman Hong Lei said at a press conference. “The Chinese side urges the U.S. side to call off the wrong action lest it should jeopardize economic cooperation and relationship between China and the US.”


Ford Canada told a parliamentary committee on Tuesday that it could support TPP if Canada had the same auto phaseout as the U.S. and if currency disciplines were added to the deal, Canadian online publication iPolitics reports:

Japanese Prime Minister Shinzo Abe’s cabinet approved a group of TPP-related bills, including one that would seek ratification of the trade deal, Kyodo News reports:

The U.S.-India Business Council said in comments to USTR that India had promised not to issue compulsory licenses for business purposes, Reuters reports:

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THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected] and @ABehsudi; [email protected] and @vtg2; [email protected] and @tradereporter; [email protected] and @mjkorade; and [email protected] and @JsonHuffman. You can also follow @POLITICOPro and @Morning_Trade.

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