NATIONWIDE: An Introduction to USA - Nationwide

Overview 

International trade law and policy developments during the first year of the Trump Administration constituted front-page news, from the renegotiation of the North American Free Trade Agreement (NAFTA) and the Korea-US Free Trade Agreement to the passage of major legislation extending sanctions on Iran, North Korea, and Russia. The coming year is expected to bring with it new legislation expanding the scope of inbound investment reviewable by the US Committee on Foreign Investment in the United States (CFIUS) and of US dual-use export controls, as well as the conclusion of the NAFTA renegotiation. The trade tensions between the United States and China, evidenced by the threatened imposition of additional tariffs under Section 301 of the Trade Act of 1974, will also play out over the course of the year.

CFIUS 

CFIUS is charged with reviewing the national security implications of transactions that will result in foreign control of a US business. CFIUS may block or place conditions on foreign investments, or even order divestment after a transaction has closed. CFIUS may review transactions of any size in any sector. An examination of whether to file for a CFIUS review has now become a routine part of the due diligence for proposed deals.

In today’s heightened security environment, CFIUS reviews have become more frequent, rigorous, and protracted, and have injected significant uncertainty into the market. CFIUS concerns have scuttled numerous investments, particularly proposed investments by Chinese investors and in the technology sector. CFIUS concerns extend to investments in US companies in financial services, biotech, telecommunications, healthcare, manufacturing, infrastructure, and many other sectors. Proposed legislative reforms being debated this year may expand the scope of CFIUS jurisdiction even further. As a result, many more transactions may be subject to CFIUS scrutiny, and the process may become longer and more expensive.

ECONOMIC SANCTIONS AND EXPORT CONTROLS 

The most newsworthy development in trade controls enforcement in 2017 was the settlement agreement that the Bureau of Industry and Security (BIS) negotiated with Zhongxing Telecommunications Equipment Corporation (ZTE), including a whopping $661 million civil penalty.

The Office of Foreign Assets Control (OFAC) has been particularly active in its use of economic sanctions since the passage in August 2017 of the Countering America’s Adversaries Through Sanctions Act (CAATSA). The Trump Administration discontinued sanctions against Sudan in October 2017, but expanded sanctions on North Korea, scaled back the Cuba travel opportunities that the Obama Administration had created, designated a number of Russian oligarchs and their holdings as Specially Designated Nationals (SDNs), and threatened repeatedly to withdraw from the Joint Comprehensive Plan of Action governing the Iranian nuclear deal.

TRADE NEGOTIATIONS 

The Trump Administration is nearing completion of an agreement in principle following the renegotiation of the NAFTA. However, President Trump has threatened the termination of the NAFTA, if US policy interests are not sufficiently secured. The United States Trade Representative has outlined negotiating objectives including strengthened services, investment, intellectual property, labor, and environmental standards.

In addition, the Trump Administration announced that it has reached an agreement in principle with South Korea regarding the US-Korea Free Trade Agreement (KORUS) renegotiation. However, President Trump recently has suggested suspending KORUS finalization until an agreement is made with North Korea relating to its nuclear program.

Trade negotiations have become more complex due to the Trump Administration’s imposition of tariffs on imported steel and aluminum. The United States has excluded Canada, Mexico, and South Korea, among others, from such tariffs. These countries—wishing to maintain tariff-exempt status—are cognizant of the interactions between such exemptions and other trade policy priorities, such as the NAFTA and KORUS renegotiations.

Finally, despite the US withdrawal from the Trans-Pacific Partnership (TPP), on March 8, 2018, the remaining eleven countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP is currently awaiting ratification. Interestingly, on January 25, 2018, President Trump announced his interest in possibly rejoining the TPP if it were a “substantially better deal” for the United States.

TRADE REMEDIES

The use of trade remedies as a means of protecting US industry from import competition continues to expand under the Trump Administration. Since the beginning of 2017, the US Department of Commerce has launched over 100 new antidumping and countervailing duty investigations, including self-initiated investigations on aluminum sheet from China.

The administration has also utilized several infrequently used US trade law provisions, such as: Section 232 of the Trade Expansion Act of 1962, to address threats to national security caused by imports of steel and aluminum products; Section 201 of the Trade Act of 1974, to address injuries to domestic industries caused by imports of solar products and washing machines; and Section 301 of the Trade Act of 1974, to address China’s technology transfer and intellectual property policies.

The expanded use of trade remedies reflects the Trump Administration’s belief that both old and new tools can be used to address trade imbalances, combat unfair practices on the part of US trading partners, and promote the national economy.

WTO DISPUTES 

This year’s hot button issue at the WTO is undoubtedly the national security exception contained in Article XXI of the General Agreement on Tariffs and Trade (GATT 1994), as well as similar exceptions in several other of the WTO Agreements. These controversial exceptions permit a WTO Member to take action, which would otherwise violate its international trade commitments, “which it considers necessary for the protection of its essential security interests.” It appears that the national security exceptions will play an important role in a number of WTO disputes launched over the past year, including disputes brought by Qatar against the UAE (DS526), Bahrain (DS527), and Saudi Arabia (DS528), respectively, as well as a dispute brought by Ukraine against Russia (DS532). The United States has also repeatedly referenced national security in justifying its imposition in March 2018 of steel and aluminum tariffs pursuant to Section 232.

The WTO must now face the challenges posed by the invocation of this controversial exception, as well as by the increasing use of unilateral action.

Despite these challenges, engagement with WTO dispute settlement procedures remains broad, with Canada, Qatar, Russia, Ukraine, and the United States all having been involved in more than one of the 17 new disputes brought in 2017.