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POLITICO Pro Morning Trade: Why USMCA? — Cargill interview — EU-China

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GOOD MORNING FROM GENEVA, I am Jakob Hanke and welcome to Morning Trade, where we couldnt help but thinking of this eighties disco classic from the Village People when writing about USMCA, the new name for the updated NAFTA deal. While in Washington they are surely partying, the mood in Brussels is more somber. More on that below.

From today, I will be in the lakeside city of Geneva to keep you abreast of all the mood music at the Public Forum of the World Trade Organization. Stay tuned!

Morning Trade is also brought to you by Hans von der Burchard, with help from Emmet Livingstone| Send tips to [email protected] and [email protected] and follow us on Twitter @vonderburchard and @hankevela | View in your browser

UNITED STATES — USMCA CAUSES TRADE HEADACHE FOR BRUSSELS: The new U.S.-Mexico-Canada Agreement is giving European carmakers, from Germany to Spain, the jitters. Brussels officials tell us they fear that the agreement — and especially its cap on car exports to the U.S. — could serve as a template for future talks with the EU. In short, restrictions of car exports and tariffs could well still be coming Europes way too.

The car quota in detail: Canada has agreed that its car exports to the United States can be effectively restricted to 2.6 million vehicles a year if President Donald Trump imposes his Section 232 auto tariffs, a side letter to the updated NAFTA trade deal says. Any autos beyond that quota would be hit by the eventual tariffs, which could be as high as 25 percent and would destroy the market for those vehicles.

“If the United States imposes a measure pursuant to section 232 of the Trade Expansion Act of 1962 … the United States shall exclude from the measure 2,600,000 passenger vehicles imported from Canada on an annual basis,” the side letter to the United States-Mexico-Canada Agreement reads.

Moreover, all light trucks as well as auto parts up to $32.4 billion in declared customs value per calendar year also remain excluded from eventual 232 tariffs, the letter adds.

Mexico receives a similar annual exemption of 2.6 million cars, plus an exemption of light trucks, and additionally car parts worth $108 billion dollars a year, according to another side letter.

Economically, the cap on Canadian car exports doesnt have an immediate impact, because it is well above what Canada exports to the U.S. But politically, the quota is still a big win for the United States. They can now show the EU and Japan that even Canada, which had fiercely opposed Trumps blackmailing tactics, has caved in.

EU officials fear that the export quotas agreed with Canada and Mexico are a sign that Trumps auto tariffs are coming. Otherwise, such voluntary quota restrictions wouldnt make sense. Czech Trade Minister Marta Nováková said that U.S.-Mexico agreement “is worsening the negotiations for us … They can say: With Mexico we were able to agree on this. So we want you to accept the same.”

With Canada giving in, that danger is now even bigger. Europe has got to watch out.

Trumps tariff love: The president on Monday seemed to confirm Europes fears by arguing that tariff threats were “good” because they have forced Canada and Mexico as well as the EU into negotiations. “By the way, without tariffs, we wouldnt be talking about a deal. Just for those babies out there who keep talking about tariffs. That includes Congress. Oh, please dont charge tariffs,'” Trump said, mimicking those who have expressed concern about his tactics.

Trump imitated Commission President Juncker: “Jean-Claude, a great business person, head of the European Union,” Trump said. “Jean-Claude my friend. Id say, Jean-Claude, we want to make a deal.”

“He goes, No, no, no. We are very happy,” Trump said, pronouncing the o in no with a French accent and drawing out the pee in happy for emphasis. Read more on Trumps comedy stint on POLITICO.

Youve got to love the way that Trump has elevated his discussions with Juncker to a sort of gigantomachy between Holmes and Moriarty. It flatters both parties.

Official reactions: The European Commission said Monday it welcomed the conclusion of trade talks between the three Northern American countries but declined to say what it was thinking of the car export quota. The Commission will first “study the outcome of these talks,” said a spokesperson.

The German industry association BDI said it was “relieved” that the U.S. and Washington had found an agreement “at the last minute,” but also struck a cautious tone: “A detailed analysis of the agreement will show whether trade can continue friction-less in the future or whether new trade barriers will be erected.”

— AN ACRONYM NO ONE KNOWS HOW TO PRONOUNCE: The names politicians gave their trade agreements matter more than youd think. EU officials found that out the hard way, when public campaigns almost killed CETA. They decided to scrap acronyms for all future deals.

Many have wondered why the North Americans have given up an acronym a famous as NAFTA, which made it into history textbooks as one of the first modern free-trade agreements. One reason was probably Trumps urge to make a point that this is a radically new deal. He had gone months bashing NAFTA, so now he had to get rid of it, if only in name.

But USMCA? “That will be the name that I guess 99 percent of the time well be hearing. USMCA. Has a good ring to it,” Donald Trump said during his speech in the Rose Garden.

But does it?

No one really knew how to pronounce it, and the almost Caucasian absence of vowels between SMC make it even harder. People on Twitter were quick to propose CAMUS as an absurdist alternative. We could also offer you SUMAC, like the Middle-Eastern spice. Or just A SCUM.

CHINA — EU CHAMBER URGES BEIJING TO DO MORE: Following harsh criticism of Chinese trade practices at a European Parliament panel last week, Morning Trade sat down for a coffee with Carlo Diego DAndrea, national vice president of the EUs Chamber of Commerce in China, and his policy coordinator Jacob Gunter to discuss their view on the situation.

They took a critical but also restrained approach: “Its a good moment to engage in a constructive dialogue with China, without putting them in a corner,” said DAndrea. “If you push China too hard the hardliners win the upper hand and reformers lose influence.” At the same time, China could and must “do more on market access, the regulatory environment and addressing the state-owned sector of the economy,” he stressed. In particular, he pointed to Chinas reluctance to change anything about the way it runs state-owned enterprises. “We actually see things going backwards,” he said, adding that it was becoming “essentially impossible” to compete with them.

“We are not against good competition if its under market economy conditions. But not with companies that are pumped up by state money,” said DAndrea, who also criticized a discrimination in receiving licenses from Chinese authorities, where “European companies have to wait much longer than [their] competitors.” Gunter, his policy coordinator, spoke of a “reform deficit.”

The case for reforms: “What we argue when we speak with the Chinese government is that a level playing field is in their interest. More competition is going to raise the standards and level of production,” said Gunter. When it comes to the talks for an EU-China investment agreement, he said that the challenge was now to convince Beijing to switch from a positive market access list — naming sectors where Europeans are allowed to invest in China and excluding everything else — to a negative list that specifically excludes a few sectors from foreign investment, while opening up the rest of the economy.

Gunter also warned of Chinas ambition to become a standard-setter on the global scale, through initiatives like One Belt One Road, and said that one of the “three top challenges” for EU business in the next five to ten years was to get better access to Chinas standard-setting institutions. The other two key challenges lie in the sectors of information communication technology (mainly forced technology transfer) and cyber security, he added.

When it comes to WTO reforms, Gunter was cautiously optimistic: “I think China has realized the value of the multilateral system because of what has happened with the U.S. tariffs,” he said.

— EU-CHINA TALKS SCHEDULED FOR OCTOBER: Speaking of ambitions to reform the WTO, the European Commission tells us that the EU-China working group on multilateral trade will get together for its first meeting “later this month.”

MULTILATERAL — CHAT WITH CARGILL CORPORATE VP ON TRADE TENSIONS: Morning Trade chatted with Cargills Corporate Vice President Devry Boughner Vorwerk on Monday, who is in Geneva for meetings with WTO and ITC officials on the sidelines of the public forum.

We chatted about a wide range of issues affecting the agri-food giants business. And in case theres any doubt as to the importance of the U.S.-based Cargill: Its one of the worlds largest agricultural commodities traders — with revenues of about €100 billion a year — with investments stretching from Indonesian palm-oil plantations to soybean farms across the Americas and massive meat production facilities in the U.S.

— On the WTO: “For a company like Cargill, whos invested in 70 countries and we trade with well over 130, our U.S. business very much depends on a consistent set of trade rules.”

“What worries us is that theres consistently a misunderstanding about the value of the WTO to the U.S. economy, to the U.S. farmer, to business, to consumers. And so were here for the WTO trade week … to also stand up and show our support.”

— In defense of the Appellate Body: “The U.S. has been the biggest beneficiary from a functioning Appellate Body. Quite frankly we cant see how you could have a system of rules without there being some oversight and way for other countries to hold their trading partners feet to the fire.”

— Forget the trade deficit: Vorwerk said that theres a misconception in the U.S. that focusing on trade deficits is a metric for the health of a trading relationship, arguing that Washington and Beijing should focus on deepening ties instead of cutting them.

— Protectionism wont lead to more jobs: Vorwerk argued that debates about losing manufacturing to China are often misplaced. “In meat production in the US., we have 1,000 open jobs on any given day,” she said. “These are well above minimum-wage jobs that come with benefits. We would contend that in order to remain the largest manufacturer in the world weve got to trade because 96 percent of the consumers are outside of the U.S.”

— EU trade: Vorwerk said she was “absolutely energized” by attitudes to trade in Brussels, saying that there was “at least ten different types of discussion going on.”

— On Brexit: “Were hoping that theres going to be some sort of negotiated outcome that works for business,” she said. Vorwerk also argued that Britain would remain a net importer of food, but said it was important that no additional tariffs or barriers be erected by the U.K.

— Protein: Brussels is currently pondering ways to increase production of protein crops, such as soy, in order to hedge against over reliance on South American imports. Vorwerk said Cargill was broadly supportive of the move. “We see that the world is going to be needing more protein in the future,” she said, adding that the company was itself looking into lab-grown meat and insects in order to meet this need.

EUROPE — OILSEED PRODUCERS CALL FOR DUTIES ON ARGENTINE BIODIESEL: The European Oilseed Alliance, a lobby, is calling on EU countries to back anti-subsidy duties, ahead of a meeting of diplomats in the Trade Defence Instruments Committee on October 3. At such meetings, EU countries have a say on anti-dumping tariffs and other trade defense decisions.

Background: Since the EU lost a WTO case on its anti-dumping duties against Argentine biodiesel, EU producers have asked the Commission to introduce countervailing duties to at least counteract Argentine subsidies.

On September 21, the EU — which is currently in negotiations with Argentina for a free-trade agreement with the Mercosur bloc of South-American countries — decided it lacked sufficient data to impose the measures.

“European farmers are once again being held hostage,” said EOA President Arnaud Rousseau, arguing that “while the US administration has decided to introduce countervailing duties … in the beginning of the year, the inaction of the EU … leads to even greater volumes of Argentine biodiesel entering the EU.”

BREXIT — THERESA MAY PREPARING CLIMBDOWN? “Theresa May is preparing to limit Britains ability to strike free-trade deals after Brexit in a significant concession to the European Union aimed at breaking the deadlock in negotiations,” according to the Times this morning. “The prime minister is ready to propose a grand bargain, according to her colleagues, which would keep Britain tied to European customs rules on goods after the transition period ends.”

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