Can the US Dep. of Commerce Impose Temporary Tariffs under USMCA?By Jan Hogewoning | Wed, 07/01/2020 - 13:01
Q: Can the US Department of Commerce impose temporary tariffs under USMCA?
A: Today, July 1, USMCA comes into effect. It will substitute the rules formerly set by NAFTA, which set the foundation for the North American economic relationship over the past 25 years. USMCA’s enforcement generates a lot of uncertainty, as did the original NAFTA treaty when it was ratified. One of the sectors going through a moment of uncertainty is the agri-food sector, particularly due to recent statements by US Trade Representative, Robert Lighthizer. His statements refer to the application of a clause of seasonality for agricultural products, which would limit the entry of some Mexican products to the US at certain time periods. This measure is not part of the USMCA treaty. Nonetheless, Chapter 10 on Trade Remedies establishes that countries have measures to safeguard trade and also states the responsible authorities to impose these. In the case of the US, the investigating authority is the International Trade Commission (ITC), which last year already determined a case of product dumping. Together with the US Department of Commerce, the ITC would be in charge of conducting investigations and dictating a definitive resolution according to the 1930 Tariff Act.
ITC’s ruling can be challenged by a binational panel in accordance with article 10.12 of USMCA, which states that “each party shall replace judicial review of final antidumping and countervailing duty determinations with a binational panel review.” The investigation deriving from such a panel and its resolution would be definitive and would not be open to challenge by domestic tribunals. To apply seasonality restrictions, industries in the US could initiate cases per region and per season in an attempt to impose antidumping measures and to gain subsidies (countervailing quotas) against Mexican and Canadian imports with greater speed and ease. In part due to differing domestic laws, Mexican and Canadian industries would not be able to establish the same mechanisms against US imports. Chaos awaits, as there will be no distinction between imports from USMCA member-countries and non-members due to the dual legal framework.
The US Trade Representative has at his disposal mechanisms which would allow investigations into dumping practices, while the ITC has the power to establish compensatory measures, one of them being the temporary restriction of imports of Mexican agricultural products. The result of these commercial acts, far from creating benefits for the US economy, will generate harm. Higher prices would impact US consumers. US distributors dealing with Mexican imports would see losses, which would result in unemployment. It is unlikely that these measures would generate new US agricultural jobs in the short term or raise the productivity of tomato production in the US, for example. In fact, it would be more of a palliative measure to maintain the status quo of a certain economic group.
The latent threat of countervailing measures hints that USMCA’s negotiation and the fast-tracked approval of secondary laws were not careful, leaving Mexico at a disadvantage vis-à-vis its main trading partner.