[CTC] Lighthizer takes NAFTA break to discuss U.S.-EU trade — Malmström hints at regulatory ‘early harvest' — U.S.-Canada NAFTA deal still being worked out

[Arthur Stamoulis]

POLITICO's Morning Trade
Lighthizer takes NAFTA break to discuss U.S.-EU trade — Malmström hints at regulatory ‘early harvest' — U.S.-Canada NAFTA deal still being worked out
By Doug Palmer and Sabrina Rodriguez | 09/10/2018 10:00 AM EDT

LIGHTHIZER TAKES NAFTA BREAK TO DISCUSS U.S-EU TRADE: U.S. Trade Representative Robert Lighthizer may be smack in the middle of talks with Canada on a revised North American trade agreement, but that's not stopping him from making a one-day trip to Brussels today to talk about a potential trans-Atlantic trade deal. 

The short visit with European Union Trade Commissioner Cecilia Malmström is the first high-level meeting since President Donald Trump and European Commission President Jean-Claude Juncker reached a temporary trade truce <http://go.politicoemail.com/?qs=98a490b26162f6eb687ce0103c7bcdfb75a426d327129c6bd67ef8f3e1e7079f4e246096080078a62e46542506d8ba0f> in July. 

Malmström and Lighthizer are co-chairs of an Executive Working Group tasked with setting the parameters of a future trade negotiations aimed at reducing tariffs to zero on all industrial goods, except autos.

Tough talk on agriculture: Our POLITICO Europe colleagues tell us the EU expects a difficult meeting because of the U.S. desire to include agriculture in any deal. However, the EU will hold firm and reject such ideas, Malmström said ahead of the talks. 

At an EU trade attachés meeting on Friday, France demanded there should be no regulatory cooperation in the agricultural sector, which it fears could be used as a backdoor to opening up ag markets into the trade talks. Paris also received backing from the Netherlands in urging the Commission not to link the planned renegotiation of a hormone-free beef quota <http://go.politicoemail.com/?qs=98a490b26162f6eb8f2db9ae8d4c436be00d2b606483ffc9f298620828d97bb2b1b966301ce5b1820310db8478823525> to the broader EU-U.S. trade talks, one person at the meeting said.

Other sticky issues: EU officials also have little hope the meeting will deliver progress on cars, which Brussels believes will have to be included in any EU-U.S. trade agreement to make it WTO-compatible.

Jean-Luc Demarty, head of the Commission's trade department, told senior EU trade attachés on Friday that it was very difficult to foresee where the U.S. stands and whether something concrete could be achieved on Monday, according to people at the meeting. Trump put autos squarely at the heart of U.S.-EU trade relations earlier this year by threatening to impose a 20 or 25 percent on all imported autos. 

He has put that threat on hold in the case of the EU, as long as the two sides are making progress in talks on a bilateral trade agreement. But he's also emphasized his desire not to eliminate a 2.5 percent on autos and a 25 percent on trucks as part of the deal, even after the EU offered to eliminate its 10 percent auto duty. 

IT'S MONDAY, SEPT. 10! Welcome to Morning Trade, where one of your hosts now looks at weather forecasts and immediately thinks about how that will affect potential NAFTA stakeouts. Is it possible to think about NAFTA too much? Got any news or tips (on NAFTA or other just about anything non-NAFTA)? Let me know: srodriguez at politico.com <mailto:srodriguez at politico.com> or @sabrod123 <http://go.politicoemail.com/?qs=98a490b26162f6eb4fe4188703854f2308737b20c4ef3c92a98fb3404ba09cb4629c736b508e08f0a511851ddca1e9ea>.

MALMSTRÖM HINTS AT REGULATORY 'EARLY HARVEST': Amid the difficulties for finding a common ground on a trade deal, EU officials have expressed hope that planned regulatory cooperation in areas like services, chemicals, pharmaceuticals and medical products can deliver quicker results. 

Malmström recently hinted that such issues could be wrapped up early when she told the European Parliament that "regulators made a lot of progress during the TTIP talks," referring to negotiations on the proposed Transatlantic Trade and Investment Partnership during the last three years of the Obama administration. 

Climate conundrum: France has already cast doubts over the feasibility of trans-Atlantic trade talks when President Emmanuel Macron said at the end of last week <http://go.politicoemail.com/?qs=98a490b26162f6ebc34380f2e3a4a222ae1e6986137919f0ed58daf9ae093e645a3025878e131db8491edb9670b6a68a> that there should be no negotiations as long as the U.S. abstains from the Paris Climate Agreement. EU countries will have to issue a mandate to the Commission before any actual trade talks can begin.

Color Kudlow 'mildly optimistic': Chief White House economic adviser Larry Kudlow said he saw growing goodwill between the two sides. He also raised the possibility of another meeting between Juncker and Trump at the United Nations General Assembly meeting later this month in New York.

In an interview Friday on CNBC, Kudlow said he believed there a was a good opportunity for the European Union to increase purchases of a number of U.S. goods as result of the bilateral talks just getting started. "Things like soybeans, things like LNG, things like beef, perhaps things like military sales... It's moving steadily. It's an early process, and color me mildly optimistic about that," he said. 

U.S.-CANADA NAFTA DEAL STILL BEING WORKED OUT: Canadian Foreign Minister Chrystia Freeland headed back to Canada on Friday evening without a breakthrough on NAFTA, Sabrina Rodriguez reported <http://go.politicoemail.com/?qs=98a490b26162f6eb2f877b2470e70956232a67b48c5eacb19d3b5b18118e8b21dbde6b7663e8e9915b9c02a4ef456e28>. But Freeland said that high-level talks between Washington and Ottawa have moved into a "continuous negotiation phase <http://go.politicoemail.com/?qs=98a490b26162f6eb3f4502351e2245ae26802bd9d5ebc3c231d2f3ebd1a6af847264f8aaddb6599a8c9a71377a34442c>" where officials will keep working until a three-way deal is reached. 

Two big hold-ups: The U.S. and Canada have been going back on forth on a compromise regarding U.S. farmers' access to Canada's dairy market <http://go.politicoemail.com/?qs=98a490b26162f6eb5f532992775b2eb5d517bccb45bf0a1b866d4a7c9cdb1004f9b812f57f85c96558fe80fef9546c10> as well as the language on a dispute process that allows Canada to challenge U.S. tariffs. Trump and administration officials - including Kudlow and Agriculture Secretary Sonny Perdue - have spotlighted dairy as an area where the U.S. demands more market access. 

"Farmers would love to have a deal today with Canada," Perdue said in an interview on Friday on C-SPAN's "Newsmakers." <http://go.politicoemail.com/?qs=98a490b26162f6ebe4c672aa181a2f4fced98c6f12dc7fe9be51cb5d0e77e004595d11cfd792ae41e752aa9218d9a015> "The whole theory really is what I call a domino effect. We knew that we wanted to restore the NAFTA agreement, get it back for agriculture." 

"The word that continues to block the deal is M-I-L-K," Kudlow said Fox Business on Friday. 

But sources close to the negotiations have said that the biggest sticking point continues to be the dispute settlement process housed in Chapter 19 of the existing deal. Canadian Prime Minister Justin Trudeau said last week that the mechanism was necessary, as it "ensures that the rules are actually followed, and we know that we have a president that doesn't always follow the rules as they're laid out." That dispute process was also a major demand from Canada in the original NAFTA negotiation.

What's next: Lighthizer will return to Washington on Tuesday, leaving a window of a couple days for him to continue high-level U.S.-Canada talks before the G-20 trade ministers meeting in Argentina on Friday. 

A LOOK AHEAD ON G-20: It remains unclear if Lighthizer will attend or send another USTR official in his place. Lighthizer traveled to Paris earlier this year for a ministerial on the sidelines of the annual OECD meeting. But he missed both the APEC and ASEAN trade minister gatherings this year, sending Deputy USTR Jeffrey Gerrish instead. 

The G-20 session is on both Malmström's <http://go.politicoemail.com/?qs=98a490b26162f6eb017ef9123f4492a0d9c00e1b9de955de05d5d3c50874c3361f14bfdbea3aa9f71e3938fd85fa8c46> and World Trade Organization Director General Roberto Azevedo's <http://go.politicoemail.com/?qs=98a490b26162f6eb0ebae473209c34a248e97a85c5ac24a76555128fd8b401f9e378e0ac48106c18bd804a7fdc2a374b> schedule. USTR does not publish a schedule of Lighthizer's travel and meetings, even though it was the practice in previous administrations. (The State Department, by contrast, regularly announces Secretary Mike Pompeo's travel plans.) 

TRUMP RE-UPS PRESSURE ON APPLE: Trump renewed his call <http://go.politicoemail.com/?qs=98a490b26162f6ebd087f62fdcaa2e4652c8d4a01cd53ebb8a88c1bb11eded43d270562065f50d6250b7aff75fc84dfb> for Apple to build electronics in the United States, after the company warned the president's proposed new tariffs on $200 billion worth of goods from China will raise prices for some of its popular products.

"Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive," Trump tweeted <http://go.politicoemail.com/?qs=98a490b26162f6eb4424b8e1620d73d16a9a3b651b6e94bc44e7b05a78f3e7c609a330f54c496ec51e6b3a5c745da670> on Saturday. "Make your products in the United States instead of China. Start building new plants now. Exciting!"

In a Sept. 5 filing to the USTR, Apple said the proposed tariffs would hit products such as the Apple Watch and AirPods as well as a variety of adapters, chargers, cables and component parts.

"Tariffs increase the cost of our U.S. operations, divert our resources, and disadvantage Apple compared to foreign competitors," the company said. "More broadly, tariffs will lead to higher U.S. consumer prices, lower overall U.S. economic growth, and other unintended economic consequences."

Most of Apple's manufacturing is China, but the company said in January that it would open a new campus and create 20,000 jobs in the U.S., shortly after Congress passed the tax overhaul that gave the company a huge windfall.

TRUMP THREATS TO HIT ALL CHINESE GOODS WITH NEW EXTRA DUTIES: One of this month's big questions is how quickly Trump will move to impose tariffs on another $200 billion worth of Chinese goods now that the public comment period on the proposal ended last Thursday. 

The administration isn't saying, but it took more than three weeks from the end of an earlier public comment period on May 22 to announce their decision on initial $50 billion worth of goods on June 15. Then, it was three more weeks before a 25 percent duty was imposed on the first tranche of $34 billion in goods on July 6. 

In comments on Air Force One on Friday, Trump indicated he could move quickly on the next big batch of $200 billion of Chinese if there isn't more progress soon from Beijing, Megan Cassella and Doug Palmer reported <http://go.politicoemail.com/?qs=98a490b26162f6eb15444597a3ec41351725dcd5f9c20815529fdeb507ae571890a09accce060824c90697faa869cd86>. He then upped the ante by saying his administration also has tariffs ready to go on another $267 billion worth of Chinese goods. 

That would apparently expand his tariff action to cover all $505 billion worth of U.S. imports <http://go.politicoemail.com/?qs=98a490b26162f6eb11b5f3ece6e3702bc02534541796d41a898bdaf308316a753798a4886ac66575428c8c4601efec56> from the Asian nation, including cellphones, the single biggest item at around $70 billion. 

Trump's latest threat "is irresponsible, not to mention legally questionable <http://go.politicoemail.com/?qs=98a490b26162f6eb92dee3df8f31d31ca3320b10d484c857e9bf6283c0c427ee0453067d611cdf18bf67a123f24cd25c>," Gary Shapiro, president and CEO of the Consumer Technology Association, said in a statement. "By slapping more punitive taxes on goods that Americans depend on, he is hurting our businesses, workers, innovation and the global standing of our nation. A 25 percent tariff on a total of $517 billion worth in goods would be, by far, the biggest tax increase U.S. consumers have faced during his presidency."

HOW MUCH WOULD A LONG TRADE WAR HURT CHINA — AND THE U.S? The economic research staff at S&P Global examined that question. "An escalation of the tariff war could start to sever or disrupt supply chains, bringing about diminished production efficiency, higher costs, and lost competitiveness — ultimately leading to a lower potential growth rate for both countries," the analytics firm said in a report released last week.

"There would likely be large (though admittedly difficult to pin down) knock-on effects through supply chains and financial markets, and stranded assets would weigh heavily on companies' balance sheets and income prospects," the report said. "Such a 'lose-lose' situation wouldn't necessarily bring either of the countries to its knees, given the relatively large domestically driven segments of the economies. We are careful not to overstate the costs — but they wouldn't be trivial, especially for the most-exposed sectors."

GDP impact: An all-out trade war could shave roughly one percentage point off U.S. GDP by 2021 and about six-tenths of one percent off Chinese GDP, S&P Global said. The damage could be two-tenths of percentage point higher for the United States and four-tenths higher for China if the trade war produced a big enough shock to shave one percentage point off global economic growth.

Currency impact: Meanwhile, the ongoing U.S.-China trade war is actually helping increase the use of China's currency, the yuan, in international commerce and financial transactions - a long-term financial goal for Beijing. South China Morning Post has more <http://go.politicoemail.com/?qs=98a490b26162f6eb58b5011fa851c923130aeff02eaf39aefcc4a5e58ba5ff5f85339f0c69b82283cad9e1ee57ce4f6c>. 

TRUMP GETS FACTS WRONG ON OBAMA AND JAPAN: Trump falsely asserted on Friday that Japan was unwilling to negotiate a trade deal with the United States in the Obama administration.

"They said, 'No, we're not going to talk trade.' Me? They're calling up," Trump said in comments to the press traveling with him on Air Force One. "And I'll tell you, if we don't make a deal with Japan, Japan knows it's a big problem for them."

That seemed to forget or ignore that Japan was one of the 11 other countries that signed the Trans-Pacific Partnership with the United States when Obama was in office. 

Still, Trump said he didn't want to start talks with Japan yet, "because we're in China," apparently referring to current trade tensions with Beijing. Despite that, he and Japanese Prime Minister Shinzo Abe agreed earlier this year to negotiate a set of "free, fair and reciprocal" trade deals. 

The two leaders are expected to talk on the sidelines of the United Nations General Assembly meeting later this month, although no specific meeting has been announced. Lighthizer and Japanese Economic Revitalization Minister Toshimitsu Motegi are also expected to meet again in September, but there is also no date for that.

COMMERCE MODIFIES STEEL EXCLUSION REQUEST PROCESS: After months of complaints about its slow and cumbersome process for reviewing requests for certain steel and aluminum products to be excluded from Trump's new tariffs, the Commerce Department is making some changes, according to a Federal Register notice <http://go.politicoemail.com/?qs=98a490b26162f6eba7a6df632299daf1bb49774271e55d49de40d6372e5e11da0eaaa44028500f72fcfbe40162e3ca72> to be published Tuesday. 

"The department understands the importance of having a transparent, fair and efficient exclusion and objection process. The publication of today's rule should make significant improvements in all three respects," the agency said in the notice, which lists many of the questions and complaints companies have about the reviews, as well as the Commerce Department's responses. 

As of Aug. 30, the department had received more than 38,000 exclusion requests and more than 17,000 objections from domestic firms saying they could supply the products in question. The Federal Register notice did not say how many exclusion requests had been resolved. However, a recent letter <http://go.politicoemail.com/?qs=98a490b26162f6eb3fc0764b06cbd4c4a8fef199252ef76f0115dcb583af7969f05d2bc4ebdb9e97cf2d6449d9a2050d> to Commerce Secretary Wilbur Ross from Sen. Pat Toomey (R-Pa.) put the number at 2,900 as of Aug. 23. 

INTERNATIONAL OVERNIGHT

— USDA Secretary Sonny Perdue is "pleasantly surprised" by farmers' support for Trump amid trade tensions, POLITICO Pro reports <http://go.politicoemail.com/?qs=98a490b26162f6eb25aca6c10ffab71a4ac55aeb4ef3d31364f1d1ac82adf147ae981413c61bd0191e0e83f3486df685>. 

— Report shows steel tariffs squeezing manufacturers in states Trump won in 2016, POLITICO Pro reports <http://go.politicoemail.com/?qs=98a490b26162f6eb574d284d9a195ab763c33c8977923dd7a59f6ae89a6bcb2a3766294c1570b2011ff13fe9248b4d29>. 

— NAFTA has changed the way people in Canada, Mexico and the U.S. eat, The Walrus reports <http://go.politicoemail.com/?qs=98a490b26162f6eb4291a088b04e0c35244a55cd19dc8241569fa144979178173a37fb2e304cd994b0402a805d40432e>. 

— China invites Wall Street's top bankers in an effort to break Trump trade impasse, Financial Times reports <http://go.politicoemail.com/?qs=98a490b26162f6eb1c168053ef6ffdc814696006d1ee9a2ebc2decc4026111cc30dab475a3d38ed29071faa7079f6289>. 

THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: abehsudi at politico.com <mailto:abehsudi at politico.com> and @abehsudi <http://go.politicoemail.com/?qs=98a490b26162f6eb6855313c170f1735f982eff1397da5800ba148c216f3b2469d3b7ec3f5cda56b7bf900256a88baf8>; mcassella at politico.com <mailto:mcassella at politico.com> and @mmcassella <http://go.politicoemail.com/?qs=98a490b26162f6eb1b6ece597d292472d9d9800419e482b25db9b76756b0d88cb63699f65e677f8aad02607799f26898>; dpalmer at politico.com <mailto:dpalmer at politico.com> and @tradereporter <http://go.politicoemail.com/?qs=98a490b26162f6eb455f52672232a529d4c7af25c57ed306ff56862067db7b45c307d7e76cf4d037f7bf215926f90564>; srodriguez at politico.com <mailto:srodriguez at politico.com> and @sabrod123 <http://go.politicoemail.com/?qs=98a490b26162f6eb4fe4188703854f2308737b20c4ef3c92a98fb3404ba09cb4629c736b508e08f0a511851ddca1e9ea>; jlauinger at politico.com <mailto:jlauinger at politico.com> and @jmlauinger <http://go.politicoemail.com/?qs=98a490b26162f6ebe497804f275fe0ba0df823dec2cb288440ed3bd21466ab31cee260d2ddb03c4945425d3a371ac339>; and pjoshi at politico.com <mailto:pjoshi at politico.com> and @pjoshiny <http://go.politicoemail.com/?qs=98a490b26162f6eb194c655622da6e48cd99b43ef27d9d37cc1f35b8cdd87399a086f8a2ac87f75cd44ef3efd8f01cbc>. Also follow us at POLITICOPro <http://go.politicoemail.com/?qs=98a490b26162f6eb31671e397b7ea5509950f79e54b44c77cc717951677406f90413bed57e10f13f7cc15c84c22e0139> and @Morning_Trade <http://go.politicoemail.com/?qs=98a490b26162f6eb47edda810541667ec6e7d3510d2c232d4916ff02554f2b18d3e82e6017298ef39b4f98a9dc4e34dc>.

To view online:
https://www.politico.com/newsletters/morning-trade/2018/09/10/lighthizer-takes-nafta-break-to-discuss-us-eu-trade-334396 <http://go.politicoemail.com/?qs=98a490b26162f6eb39b7153570212939587048038a168bbfc1e88d50990d003549aab1922ae43b773c72edae29912b1d>

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826




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