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Tougher Trade Policy Measures Urged by Senate Democrats

Tuesday, August 08, 2017
Sandler, Travis & Rosenberg Trade Report

A new initiative by Senate Democrats seeks to “fundamentally transform [U.S.] trade policies by giving American workers and small businesses the tools to combat those countries that try to cheat on trade and a stronger voice in negotiating trade agreements.” Press sources characterize the plan as an effort to reclaim momentum on this issue, which played a major role in last year’s presidential election, but point out that it contains few new ideas and in many cases aligns closely with objectives advanced by President Trump. Democrats say they plan to introduce legislation this fall to start implementing the plan, which focuses on the following provisions.

Circumvent the WTO. The plan would establish a new independent trade prosecutor who would challenge unfair trade practices outside of the World Trade Organization or free trade agreement mechanisms. These processes take many years to resolve problems, the plan states, and WTO decisions in particular have eroded a number of U.S. trade enforcement tools.

The trade prosecutor would be housed at a new office in the International Trade Commission and would thus be able to address “more trade cheating than USTR is currently able to” (e.g., subsidies, forced technology transfers, cyber espionage, intellectual property theft, import restrictions) under strict timelines and independent from U.S. foreign policy goals and WTO constraints. If foreign countries are found to be in violation and do not agree to eliminate offending policies they would face retaliation in the form of U.S. market access restrictions in proportion with a U.S. company’s losses or the foreign company’s unfair advantage.

                                              

Review Foreign Acquisitions. The plan would establish a new council of independent economic experts that would have the authority to consider major investments, mergers, and acquisitions by foreign entities and to stop such deals if they would create significant market distortion or have other detrimental economic impacts, including intellectual property leakage, loss of market share in critical industries, and U.S. job losses. The council’s consideration would focus on entities that either have ties to or are directly controlled by certain governments or state actors that do not abide by market principles or have a history of intellectual property theft. The plan explains that countries like China and Russia are using state-owned enterprises to acquire U.S. companies in an effort to “siphon trade secrets and technology to directly compete with other U.S. firms.”

Renegotiate NAFTA. The plan seeks to ensure that NAFTA is renegotiated “in the open with workers at the table” (by revamping the trade advisory committee structure and providing regular updates to the public), includes enforceable labor and environmental standards that are “much stronger than those in any past trade agreement,” provides greater and more secure market access for U.S. exports, and creates new economic opportunities in services and digital trade. The plan blames NAFTA’s “unenforceable labor and environment standards” for the offshoring of U.S. jobs and declining U.S. wages, asserts that the agreement benefits primarily large corporations, and claims that Mexico and Canada “have been cheating without repercussions” because NAFTA does not address practices such as currency manipulation and unfair government subsidy programs.

Penalize Outsourcing. “Many companies that receive federal grants or loans are outsourcing customer service functions, like call centers that handle sensitive U.S. consumer information, to countries that have poor data security protections,” the plan states. The plan would penalize such contractors by requiring federal agencies to consider a company’s record of outsourcing for three years prior to application for federal contracts and establishing a negative preference of up to 10 percent of the cost of a contract for that company for outsourcing activity. The plan would also create “a public ‘shame’ list” of U.S. companies that regularly relocate U.S. jobs overseas and establish a negative preference for issuing certain federal grants and loans for companies on that list.

Further, the plan would (a) deny current tax deductions for the cost of moving U.S. production and jobs outside the U.S., (b) create a tax credit of up to 20 percent for the cost of relocating production and jobs to the U.S., (c) require companies that outsource jobs to forfeit up to five years’ worth of tax benefits, and (d) require companies that move their headquarters overseas to pay their full U.S. tax bills on all profits they hold overseas before such a move.

Expand Buy America Requirements. The plan laments the failure of the WTO Government Procurement Agreement to open foreign markets, stating that “many of our trade partners have much stronger programs and protections favoring their domestic companies.” In response, the plan would (1) require taxpayer dollars to be spent on U.S. companies and U.S. jobs for all federal public works and infrastructure projects, (b) limit the amount of manufactured products in transportation and water infrastructure projects that can be foreign-made, (c) limit the amount of foreign production in military contracts, (d) require up-to-date reporting on the use of Buy America waivers for foreign firms, (e) maintain the existing “melted and poured” standard for iron and steel, with no exceptions, and (f) restrict the use of Buy America waivers for products from non-market economies.

Address Currency Manipulation. The plan would clarify that countervailing duty law can address currency undervaluation, require the Department of Commerce to investigate currency undervaluation as a subsidy if a U.S. industry requests it, and allow duties to be assessed against countries that manipulate their currencies equal to the effect of that manipulation.

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