European Union

The EU as a single entity continued to be the United States’ largest merchandise trading partner in 2018, while EU member countries comprised 6 of the top 15 U.S. trading partners in terms of two-way (exports plus imports) trade. U.S. two-way merchandise trade with the EU increased 12.4 percent to $806.4 billion in 2018, accounting for 19.2 percent of total U.S. merchandise trade with the world. U.S. exports to the EU were $318.6 billion, which placed the EU as the top U.S. export market for the third year in a row. U.S. merchandise imports from the EU were $487.8 billion, second to those from China. Both U.S. exports and U.S. imports with the EU increased in 2018, but U.S. imports grew more, widening the U.S. merchandise trade deficit with the EU to $169.1 billion, an increase of 11.8 percent from the previous year. Leading U.S. exports to the EU included civilian aircraft, engines, and parts; crude petroleum; medicaments (medicines); refined petroleum products; and nonmonetary gold. Leading U.S. imports were passenger motor vehicles, medicaments, certain immunological products, light oils, and parts of turbojets and turbopropellers.

The EU was also the United States’ largest trading partner in terms of private services in 2018, accounting for 33.4 percent of total U.S. trade in private services. U.S. services exports increased more than U.S. services imports, widening the U.S. trade surplus in services with the EU from $50.3 billion in 2017 to $53.2 billion in 2018.

Among the important U.S.-EU trade developments in 2018 were the announcement of the establishment of a U.S.-EU Executive Working Group aimed at reducing transatlantic barriers to trade, a joint U.S.-EU-Japan scoping paper on damaging nonmarket economic policies of third countries, and a joint review of the EU-U.S. Privacy Shield Framework.

China

In 2018, China remained the United States’ largest single-country trading partner based on two-way merchandise trade, accounting for 15.7 percent of total U.S. merchandise trade with the world. U.S. two-way merchandise trade with China amounted to $659.8 billion in 2018, an increase of 3.9 percent from 2017. The U.S. merchandise trade deficit with China remained far higher than the U.S. trade deficit with any other trading partner in 2018, amounting to $419.2 billion. Its $43.6 billion increase (11.6 percent) relative to the year before reflected a $34.0 billion increase in U.S. merchandise imports from China and a $9.6 billion decrease in U.S. merchandise exports to China in 2018. U.S. merchandise imports from China totaled $539.5 billion in 2018, while U.S. merchandise exports to China totaled $120.3 billion. Leading U.S. exports to China in 2018 were civilian aircraft, engines, and parts; crude petroleum; passenger motor vehicles; semiconductors; and soybeans. Leading U.S. imports from China were cellphones; portable computers and tablets; telecommunications equipment; and computer parts and accessories.

In 2018, China was the United States’ third-largest services trading partner, with two-way services trade totaling $75.0 billion—5.6 percent of total U.S. cross-border services trade in 2018. The U.S. cross-border trade surplus in services with China increased $240 million in 2018 to $38.5 billion. However, the rate of growth in the United States’ services imports from China outpaced that of the United States’ services exports to China. From 2017 to 2018, U.S. services exports to China grew by $1.2 billion, or 2.1 percent, while U.S. services imports from China grew by $915 million, or 5.8 percent.

In May 2018, prominent bilateral trade issues were addressed in consultations between the U.S. Trade Representative, the Secretary of the Treasury, and the Secretary of Commerce on the U.S. side, and the Chinese State Council Vice Premier, and other high-ranking Chinese officials on China’s side. Major topics addressed by U.S. and Chinese officials as part of these consultations were increasing U.S. agricultural and energy exports to China, intellectual property protection, and encouraging two-way bilateral investment.

China also imposed 25 percent ad valorem tariffs on selected U.S. products in response to U.S. tariffs at that level on approximately $50 billion of Chinese imports, which the United States imposed following USTR’s section 301 investigation. Both the United States and China imposed the first tranche of their tariffs on July 6, 2018, and the second tranche on August 23, 2018. USTR took further action under section 301, imposing an additional 10 percent tariff on approximately $200 billion of Chinese imports on September 24, 2018.

Canada

In 2018, Canada was the United States’ second-largest single-country trading partner after China for the fourth consecutive year. The value of U.S. two-way merchandise trade with Canada rose 6.1 percent to $617.1 billion in 2018, accounting for 14.7 percent of total U.S. merchandise trade with the world. Both U.S. merchandise exports and imports with Canada increased in 2018 from the previous year, but imports outpaced exports, resulting in a $2.6 billion increase (15.8 percent) in the U.S. merchandise trade deficit with Canada to $19.7 billion. Leading U.S. exports to Canada included crude petroleum; civilian aircraft, engines, and parts; motor vehicles—both for passengers and for goods transport—as well as their parts and accessories; and light oils. Top U.S. imports from Canada included crude petroleum; passenger motor vehicles and their parts and accessories; refined petroleum products; natural gas; and coniferous wood and products.

Canada remained the second-largest single-country U.S. trading partner for services in 2018, after the UK. Two-way services trade with Canada grew in 2018 to $99.3 billion, while the U.S. surplus in services increased to $28.0 billion, up from $24.9 billion the year before.

In 2018, a major focus of U.S.-Canada trade relations was the proposed USMCA, which all parties signed on November 30, 2018. Pending final actions by the three countries, NAFTA remained in force. The WTO established a dispute settlement panel in a case requested by Canada concerning U.S. antidumping and countervailing duties on Canadian softwood lumber products. However, no new negotiations on the softwood lumber agreement took place between the United States and Canada in 2018. In other developments, U.S. and Canadian officials signed a memorandum of understanding on the Canada-United States Regulatory Cooperation Council, reaffirming commitments to closer regulatory alignment.

Mexico

In 2018, Mexico was the United States’ third-largest single-country merchandise trading partner. U.S. two-way merchandise trade with Mexico amounted to $611.5 billion in 2018, an increase of 9.7 percent from 2017. Mexico accounted for 14.5 percent of U.S. trade with the world. U.S. merchandise exports to Mexico totaled $265.0 billion in 2018, and U.S. merchandise imports from Mexico amounted to $346.5 billion. Both U.S. merchandise imports and exports with Mexico increased in 2018 from the previous year. As the growth in imports outpaced that of exports, the merchandise trade deficit grew by $10.6 billion (14.9 percent) from the previous year, totaling $81.5 billion in 2018. Leading U.S. exports to Mexico included light oils; refined petroleum products; computer parts and accessories; diesel engines; semiconductors; parts and accessories of bodies (including cabs) for motor vehicles; and civilian aircraft, engines, and parts. Leading U.S. imports from Mexico included passenger motor vehicles, motor vehicles for goods transport, telecommunications equipment, road tractors for semi-trailers, color TV reception apparatus, and insulated ignition wiring sets.

Mexico was the United States’ sixth-largest single-country trading partner for services in 2018. U.S. exports of services to Mexico increased 4.0 percent ($1.3 billion) to $33.4 billion in 2018, while U.S. services imports from Mexico increased 1.2 percent ($310 million) to $25.6 billion. This resulted in a U.S. services trade surplus of $7.7 billion with Mexico in 2018.

A major focus of U.S.-Mexico trade relations in 2018 was the signing of USMCA on November 30, 2018. Joint efforts to modernize border procedures and facilities also continued in 2018, with the creation of new customs and inspection processes, pedestrian and vehicle inspection facilities, and vehicle processing lanes. Since the 2015 conclusion of a pilot program to address cross-border trucking between the United States and Mexico under NAFTA, the Federal Motor Carrier Safety Administration has been accepting applications from Mexico-domiciled motor carriers interested in conducting long-haul operations beyond the U.S. commercial zones.

Japan

In 2018, Japan remained the United States’ fourth-largest single-country trading partner in terms of two-way trade, accounting for 5.2 percent of total U.S. merchandise trade. The value of U.S. two-way merchandise trade with Japan grew 6.6 percent from 2017, to $217.6 billion in 2018. U.S. merchandise exports to Japan totaled $75 billion in 2018, and U.S. merchandise imports from Japan amounted to $142.6 billion. Although both imports and exports grew from 2017 to 2018, U.S. exports to Japan outpaced U.S. imports from Japan, and the U.S. merchandise trade deficit with Japan declined by $1.2 billion from 2017 (1.7 percent), totaling $67.6 billion in 2018. Leading U.S. exports to Japan were civilian aircraft, engines, and parts; liquefied propane; corn; semiconductor manufacturing machines; and medicaments. Leading U.S. imports from Japan were passenger motor vehicles, parts for airplanes or helicopters, motor vehicle gearboxes, and parts for printers.

In 2018, Japan remained the United States’ third-largest single-country services trading partner, representing 5.5 percent of U.S. services trade. U.S. cross-border services exports to Japan fell by $805 million, or 1.8 percent, to $44.4 billion in 2018, while U.S. cross-border services imports from Japan increased by $1.4 billion, or 4.8 percent, to $34.5 billion. As a result, the U.S. surplus in services trade with Japan declined to $14.0 billion from $16.2 billion the year before.

In 2018, President Trump and Prime Minister Abe of Japan agreed to initiate bilateral trade negotiations for a possible U.S.-Japan Trade Agreement. The United States has sought to increase regulatory compatibility in key goods sectors, and to obtain more fair and equitable trade in the motor vehicle sector. Both the United States and Japan have reaffirmed their common interests in addressing nonmarket economic issues including excess capacity and forced technology transfer. Other trade-related developments in 2018 include a reduction in Japan’s safeguard tariff on imports of frozen beef, the reopening of the Japanese market to U.S. lamb and goat meat exports, and reforms to the requirements for drug producers supplying the Japanese pharmaceutical market.

Republic of Korea

The Republic of Korea (South Korea) continued to be the United States’ sixth-largest single-country merchandise trading partner in 2018 (behind Germany and ahead of the United Kingdom), accounting for 3.1 percent of U.S. trade with the world. Two-way merchandise trade grew 9.0 percent from the previous year to $130.6 billion in 2018. U.S. merchandise exports to South Korea were valued at $56.3 billion in 2018, while U.S. merchandise imports from South Korea totaled $74.2 billion. The resulting trade deficit with South Korea was $17.8 billion in 2018, down 22.7 percent from 2017, as the increase in U.S. exports to South Korea from 2017 to 2018 outpaced the increase in U.S. imports from South Korea over the same period. Leading U.S. exports to South Korea included crude petroleum; machines for the manufacture of semiconductor devices or electronic integrated circuits; civilian aircraft, engines, and parts; beef; passenger motor vehicles; liquefied propane; natural gas; and semiconductors. Leading U.S. imports from South Korea included passenger motor vehicles, cellphones, computer parts and accessories, refined petroleum products, and immunological products.

In 2018, South Korea remained the United States’ ninth-largest single-country services trading partner based on two-way trade. U.S. services exports to South Korea fell 6.7 percent in 2018 to $21.9 billion, while U.S. services imports from South Korea rose by 7.0 percent in 2018 to reach $9.9 billion. As a result, the U.S. services trade surplus with South Korea decreased by 15.6 percent, from $14.3 billion in 2017 to $12.0 billion in 2018.

In 2018, the United States and South Korea negotiated and signed modifications to the U.S.-Korea FTA (KORUS), which originally entered into force on March 15, 2012. The new modifications were signed on September 24, 2018, and entered into force on January 1, 2019. The 2018 modifications to KORUS included a 20-year extension to the phaseout of the 25 percent U.S. tariff on South Korean trucks, provisions on doubling the annual quota per manufacturer of U.S.-origin trucks that can meet U.S. safety standards and enter the South Korean market without further modification eliminating duplicative emissions testing for U.S. exports of automotive vehicles, changing the treatment of U.S. exports under KORUS by South Korean customs to better process claims for preferential tariff treatment, and ensuring nondiscriminatory treatment for U.S. pharmaceutical exports, among others.

India

In 2018, India was the United States’ ninth-largest single-country trading partner based on two-way merchandise trade (behind France and ahead of Italy). U.S. two-way merchandise trade with India increased by 17.8 percent to $87.1 billion in 2018, accounting for 2.1 percent of U.S. merchandise trade with the world. Both U.S. exports to India and U.S. imports from India grew from 2017 to 2018, with the increase in exports exceeding the increase in imports. U.S. merchandise exports to India were $33.1 billion in 2018 and U.S. merchandise imports from India were $54.0 billion, resulting in a U.S. merchandise trade deficit with India of $20.9 billion in 2018, down 7.6 percent from 2017. Leading U.S. exports to India in 2018 were nonindustrial diamonds; crude petroleum; civilian aircraft, engines, and parts; nonmonetary gold; and bituminous coal. Leading U.S. imports from India in 2017 were nonindustrial diamonds, certain medicaments, frozen shrimp, light oils, and gold jewelry.

India was the United States’ seventh-largest single-country trading partner for services and was the only country among the top eight services trading partners with which the United States had a services trade deficit in 2018, though this deficit has been narrowing since 2015. The services trade deficit with India decreased by 0.6 percent to $4.8 billion in 2018. U.S. cross-border services exports to India amounted to $24.8 billion, while U.S. cross-border services imports from India amounted to $29.5 billion in 2018.

Among U.S.-India trade developments in 2018, USTR announced that it was reviewing India’s eligibility for tariff preferences under GSP due to concerns with program compliance. At the WTO, the United States submitted a counternotification to the WTO Committee on Agriculture regarding India’s price supports for wheat, rice, and cotton.

Taiwan

In 2018, Taiwan remained the 11th-largest single-country U.S. trading partner (behind Italy and ahead of the Netherlands). U.S. two-way merchandise trade with Taiwan grew 11.5 percent to $76.0 billion in 2018, accounting for 1.8 percent of total U.S. merchandise trade with the world. U.S. merchandise exports to Taiwan were $30.2 billion in 2018 and U.S. merchandise imports from Taiwan were $45.8 billion, The U.S. merchandise trade deficit with Taiwan narrowed 7.3 percent to $15.5 billion in 2018, as U.S. exports to Taiwan rose by a larger amount than U.S. imports from Taiwan. The top U.S. exports to Taiwan during the year were crude petroleum; civilian aircraft, engines, and parts; machines for semiconductor or integrated circuit manufacturing; semiconductors; and computer memories. The top U.S. imports from Taiwan during the year were computer parts and accessories, microchips, telecommunications equipment, semiconductor storage devices, and semiconductors.

U.S. services exports to Taiwan increased by 2.5 percent to $9.6 billion, while U.S. services imports from Taiwan grew 3.4 percent to $8.2 billion. As a result, the U.S. services trade surplus with Taiwan continues to decline; it decreased by 1.6 percent, from $1.40 billion in 2017 to $1.37 billion in 2018.

The primary forum for bilateral discussions on trade and investment issues is the U.S.-Taiwan Trade and Investment Framework Agreement (TIFA). In 2018, while there was no TIFA Council meeting, the U.S.-Taiwan trade relationship continued through other mechanisms. The key issues remain technical barriers to trade, digital piracy, investment, and agriculture.

Chapter 1 Introduction and Overview of U.S. Trade

Scope and Approach of the Report

This report provides factual information on the operation of the U.S. trade agreements program and its administration for calendar year 2018. Section 163(c) of the Trade Act of 1974 (19 U.S.C. 2213(c)) states that “the International Trade Commission shall submit to the Congress at least once a year, a factual report on the operation of the trade agreements program.” Section 1 of Executive Order 11846 defines the trade agreements program to include “all activities consisting of, or related to, the negotiation or administration of international agreements which primarily concern trade,” [3] and section 163(a) of the Trade Act of 1974 sets out the types of information that the President is to include in his annual report to the Congress on the operation of the trade agreements program. [4] This report seeks to provide information on the activities defined in the Executive Order and, to the extent appropriate and to the extent that there were developments to report and information was publicly available, the elements set out in section 163(a). This year marks the 70th edition of the USITC’s report on the operation of the trade agreements program.

Organization of the Report

This first chapter gives an overview of the international economic and trade environment within which U.S. trade policy was conducted in 2018. It also provides a timeline of selected key trade activities. Chapter 2 covers the administration of U.S. trade laws and regulations in 2018, including tariff preference programs such as the Generalized System of Preferences (GSP). Chapter 3 focuses on U.S. participation in the World Trade Organization (WTO), including developments in major WTO dispute settlement cases during 2018. Chapter 4 covers 2018 developments at the Organisation for Economic Co-operation and Development (OECD) and Asian-Pacific Economic Cooperation (APEC) forum, as well as developments involving trade and investment framework agreements. Chapter 5 describes U.S. negotiation of and participation in free trade agreements (FTAs) in 2018, and chapter 6 covers trade data and trade relations in 2018 with major U.S. trading partners.

Sources

This report is based on primary-source materials about U.S. trade programs and administrative actions pertaining to them. These materials chiefly encompass U.S. government reports, Federal Register notices, and news releases, including publications and news releases by the U.S. International Trade Commission (USITC or the Commission) and the Office of the United States Trade Representative (USTR). Other primary sources of information include publications of international institutions, such as the International Monetary Fund, World Bank, OECD, WTO, United Nations, and foreign governments. When primary-source information is unavailable, the report draws on professional journals, trade publications, and news reports for supplemental factual information.

Like past reports, The Year in Trade 2018 relies on data from the U.S. Census Bureau (U.S. Census) of the U.S. Department of Commerce (USDOC) for the U.S. merchandise trade statistics presented throughout the report. Most tables in the report present U.S. merchandise trade statistics using “total exports” and “general imports” as measures, [5] except for data on imports that have entered the United States with a claim of eligibility under trade preference programs and FTAs. Such data require an analysis of U.S. “imports for consumption”—the total of all goods that have been cleared by U.S. Customs and Border Protection (U.S. Customs) to enter the customs territory of the United States with required duties paid. [6] Also, much of the trade data used in the report, including U.S. services and merchandise trade data, are revised over time, so the trade statistics for earlier years in this report may not always match the data presented in previous reports. New this year, a supplemental merchandise trade dataset reflecting the data used in this report will also be released. The most current version of the merchandise trade data used in this report can be accessed using the USITC’s DataWeb database ( https://dataweb.usitc.gov ). [7]

Chapters 1 and 6 also offer data on services trade. The information on services trade is based on data for cross-border trade in private services, which exclude government sales and purchases of goods and services not included elsewhere. The source of these data is the Bureau of Economic Analysis (BEA) of the USDOC.

Overview of the U.S. and Global Economies in 2018

U.S. Economic Trends in 2018

The level of U.S. imports and exports of goods and services depends on many factors, including the strength of the U.S. and global economies. The United States had a $20.5 trillion economy in 2018. [8] The U.S. economy grew faster in 2018 than in 2017: U.S. real gross domestic product (GDP) increased 2.9 percent in 2018, compared to the growth rate of 2.2 percent in 2017 (figure 1.1). [9] The industries driving the higher growth rate were professional and business services; manufacturing; information; and educational services, health care, and social assistance. [10]

Source: USDOC, BEA, Interactive data, National data, National Income and Product Accounts “Table 1.1.1, Percent Change from Preceding Period in Real Gross Domestic Product,” June 20, 2019.

Note: Underlying data can be found in appendix table B.3 .

Global Economic Trends in 2018

The global economic growth rate fell slightly from 3.8 percent in 2017 to 3.6 percent in 2018 (figure 1.2). [11] Growth in the advanced economies slowed to 2.2 percent in 2018, down from 2.4 percent the previous year. The growth rate of emerging market and developing economies also fell—decreasing 0.3 percentage points from 4.8 percent in 2017 to 4.5 percent 2018. This decline was primarily due to a slight dip in the growth rates of the Chinese and Indian economies over this period. [12] All of the United States’ top eight trading partners based on two-way trade showed slower growth rates in 2018 than in 2017 (figure 1.2).

Source: IMF, World Economic Outlook , April 2019.

Note: Underlying data can be found in appendix table B.4 .

The moderation in global growth in 2018 can be attributed to short-term uncertainty in certain economies, due to trade tensions and financial market pressures in large emerging markets and a convergence towards modest long-term growth rates among advanced economies. [13] Compared to its major trading partners, the United States was the only economy to show an improvement in its growth rate from 2017 to 2018. While growth in China (6.6 percent) and India (7.1 percent) remained relatively steady—decreasing only 0.2 percentage points for each country from 2017 levels—other economies experienced steeper declines. [14] Canada’s growth rate fell by 1.2 percentage points in 2018, due in part to lower prices for oil exports, pipeline capacity constraints, and slowing household spending. [15] Japan’s growth fell from 1.9 percent in 2017 to 0.8 percent in 2018, due, in part, to natural disasters, [16] and the EU saw a decrease of 0.6 percentage points in its growth rate over the same time period. Growth rates among the United States’ top trading partners were mostly below the world average of 3.6 percent in 2018, with the exception of China and India. [17] For the latter countries, continued levels of high growth were largely due to changes in government policies that encourage consumption and investment as well as an expansionary stance on monetary policy. [18]

Overall world trade volume for goods and services increased in 2018 by 3.8 percent, a slower rate than the 5.4 percent increase seen in 2016–17. [19] Both advanced and emerging economies showed slower growth rates in imports and exports in 2018. [20] In 2018, exports from emerging economies grew by 4.3 percent, down from 7.2 percent in 2017. Exports from advanced economies grew by 3.1 percent, down from 4.4 percent in 2017. Emerging economies’ imports grew by 5.6 percent in 2018, down from 7.5 percent the previous year, and in advanced economies they grew by 3.3 percent, down from 4.3 percent, over the same period. [21]

Exchange Rate Trends

The U.S. dollar appreciated relative to the currencies in the broad dollar index, [22] rising 5.5 percent between January and December 2018. This was in contrast to a 6.3 percent depreciation of the U.S. dollar as measured by the broad dollar index from January to December 2017. The 2018 trend was driven by the appreciation of the U.S. dollar against major world currencies, including most of the currencies of its main trading partners (figure 1.3). Between January 1 and December 31, 2018, the U.S. dollar appreciated by 9.6 percent against the Indian rupee; 9.1 percent against the Canadian dollar; 6.5 percent against the British pound sterling; 5.9 percent against the Chinese yuan; 5.2 percent against the euro; and 0.8 percent against the Mexican peso. Over the same period, the U.S dollar depreciated by 2.2 percent against the Japanese yen. [23]

Source: Federal Reserve System, “ Foreign Exchange Rates ” (accessed June 10, 2019).

Note: This figure shows the units of the foreign currency per unit of the U.S. dollar. A decrease in the index represents a depreciation of the U.S. dollar relative to the foreign currency, and an increase in the index represents an appreciation of the U.S. dollar relative to the foreign currency.

The dollar’s rise was partly driven by the Federal Open Market Committee’s four interest rate hikes from the 1.25–1.50 percent range to the 2.25–2.50 range against a backdrop of stronger growth and a lower-than-expected unemployment rate. [24] Investors contributed to the rise by increasing the demand for the dollar in response to the uncertainty related to the trade conflict between the United States and China. Investors continued to hold the dollar throughout the conflict, anticipating that the U.S. economy would be less affected than the economies of other countries by the uncertainty. [25] The appreciation of the dollar eventually tapered off in late 2018 following a shift in market expectations about the pace and extent of monetary policy tightening and the U.S. government shutdown at the end of the year. [26]

U.S. Trade in Goods in 2018

The value of U.S. merchandise exports was $1,664.1 billion in 2018, a 7.6 percent increase from the 2017 level (figure 1.4 and appendix table A.1). The value of U.S. merchandise imports totaled $2,541.3 billion over the same period, an 8.6 percent increase from the 2017 level (figure 1.4 and appendix table A.2). [27] U.S. imports grew more than U.S. exports, leading to an $82.7 billion increase in the U.S. merchandise trade deficit to $877.2 billion in 2018. [28] None of the 11 broad merchandise sectors that make up the U.S. economy experienced a trade surplus in 2018: these include agricultural products, forest products, chemicals, energy, textiles and apparel, footwear, minerals and metals, machinery, transportation equipment, electronic products, and miscellaneous manufactures. [29]

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.5 .

Exports of energy-related products had the largest absolute and relative (percentage) increase in terms of value. Imports in this sector also experienced the largest relative (percentage) increase, but were second to imports of chemicals and related products in terms of absolute increase. Energy exports rose 35.7 percent in 2018, and imports increased by 19.4 percent over the same period (table 1.1 and table 1.2).

Several factors contributed to the increase in exports and imports by value in the energy sector in 2018. Crude petroleum, ^[30] which accounts for a large portion of the trade in the energy products sector (24.1 percent of the exports and 66.8 percent of the imports), drove much of the large changes in energy sector exports and imports in 2018. ^[31] First, both U.S. production of and demand for crude petroleum increased in 2018, but the increase in production exceeded the increase in demand, lowering the demand for U.S. imports and increasing U.S. exports in volume terms. The increase in U.S. production of crude petroleum was larger than the increase in domestic refinery demand for the second year in a row, with domestic consumption growing from 16.6 million to 17.0 million barrels a day (3.8 percent), compared to an increase in production from 9.4 million to 11.0 million barrels a day (17.2 percent) in 2018. ^[32] As a result, the volume of U.S. imports of crude petroleum decreased by 77.4 million barrels (2.7 percent) in 2018, ^[33] and the volume of U.S. exports of crude petroleum grew by 308.9 million barrels (73.1 percent) from 2017 to 2018. ^[34] In addition, prices for crude petroleum rose substantially in 2018. ^[35] This price increase contributed to the 108.9 percent ($24.6 billion) increase in the value of crude petroleum exports [36] and resulted in an 18.1 percent ($24.1 billion) increase in the value of imports, outweighing the decline in import volume (appendix tables A.3 and A.4).

U.S. Merchandise Trade by Product Category

Exports

Transportation equipment continued to be the largest U.S. export sector in 2018, accounting for 20.3 percent of all U.S. exports. It was followed by electronic products (16.6 percent of exports) and chemicals and related products (14.6 percent of exports) (table 1.1 and appendix table A.1). The top export products were civilian aircraft, engines, and parts; refined petroleum products; crude petroleum; light oils; nonmonetary gold; and nonindustrial diamonds (appendix table A.3).

Table 1.1 U.S. merchandise total exports to the world, by USITC digest sector, 2017–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown. For a definition of special provisions, see footnote 43.

Exports in all merchandise sectors increased in 2018 (table 1.1). [37] The largest increase in both value and percentage terms occurred in the energy-related products sector (up $51.6 billion to $195.9 billion). It was followed in value by chemicals and related products (up $15.9 billion to $243.4 billion) and transportation equipment (up $12.4 billion to $337.9 billion). At the product level, there were both increases and decreases in top exports. The largest increases at the product level were all in the energy-related products sector, including exports of crude petroleum (up $24.6 billion to $47.2 billion), light oils (up $9.6 billion to $39.2 billion), refined petroleum products (up $6.8 billion to $55.0 billion), liquefied propane products (up $2.5 billion to $14.9 billion), and bituminous coal (up $2.2 billion to $11.7 billion). Exports of civilian aircraft, engines, and parts increased $9.4 billion to $130.4 billion. The largest decline was in soybeans, exports of which declined by $4.4 billion (20.3 percent) to $17.1 billion. It was followed by passenger motor vehicles, for which exports declined by $2.7 billion (4.6 percent) to $56.5 billion (appendix table A.3). [38]

Imports

Electronic products and transportation equipment continued to be the top two import sectors in 2018, accounting respectively for 19.9 percent and 18.1 percent of total 2018 U.S. imports (table 1.2 and appendix table A.2). Passenger motor vehicles were the largest U.S. import product, valued at $195.5 billion in 2018. [39] They were followed by crude petroleum ($157.0 billion), medicaments ($56.0 billion), cellphones ($52.8 billion), and telecommunications equipment ($47.3 billion) (appendix table A.4).

Table 1.2 U.S. merchandise general imports from the world, by USITC digest sector, 2017–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown. For a definition of special provisions, see footnote 46.

The value of U.S. imports in all 11 sectors increased in 2018 (table 1.2 and appendix table A.2). [40] The largest increase in value occurred in the chemicals and related products sector (up $43.1 billion to $311.2 billion, an increase of 16.1 percent), followed by the energy-related products sector, which also showed the largest percentage increase. Imports of energy-related products grew by $38.2 billion (19.4 percent), from $196.8 billion in 2017 to $235.0 billion in 2018; U.S. crude petroleum imports alone grew by $24.1 billion to $157.0 billion in 2018. [41] Other large increases in imports were recorded in the transportation equipment sector (up $24.9 billion to $459.7 billion in 2018) and electronic products sector (up $21.9 billion to $506.1 billion). After crude petroleum, the largest import increases at the product level were in petroleum oils (up $8.3 billion to $35.1 billion); computers (up $8.3 billion to $31.7 billion); medicaments (up $5.8 billion to $56.0 billion); and computer parts (up $5.1 billion to $27.1 billion).

U.S. Merchandise Trade with Leading Partners

Table 1.3 shows U.S. trade with major trading partners, ranked by total trade (exports plus imports) in 2018. In 2018, the European Union (EU) remained the United States’ top trading partner in terms of two-way merchandise trade, followed by China, Canada, and Mexico. Ranked by exports, the EU was the leading market for U.S. exports at $318.6 billion (19.1 percent of total exports). Canada followed closely at $298.7 billion (18.0 percent) (figure 1.5). Ranked by U.S. imports, China was the leading source of imports into the United States at $539.5 billion (21.2 percent of imports), followed by the EU at $487.8 billion (19.2 percent) (figure 1.6). [42]

Table 1.3 U.S. merchandise trade with major trading partners and the world, 2018 (million dollars), ranked by two-way trade

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

U.S. merchandise exports to nearly all leading trading partners increased from 2017 to 2018 (table 1.4). Exports declined only to China (down by $9.6 million or 7.4 percent). The largest increase in value was a $35.4 billion increase in exports to the EU ($318.6 billion in 2018, up from $283.3 billion in 2017). It was followed by a $21.7 billion increase in exports to Mexico ($265 billion in 2018, up from $243.3 billion in 2017). In percentage terms, the largest increase in exports between 2017 and 2018 was to India (28.9 percent), followed by Taiwan (17.5 percent) and South Korea (16.6 percent).

Table 1.4 U.S. merchandise total exports to major trading partners and the world, 2017–18, ranked by total exports 2018

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

U.S. merchandise imports from all of the major trading partners increased in 2018 (table 1.5). The largest rise in value was a $53.3 billion increase in imports from the European Union (up 12.3 percent), followed by a $34 billion increase in imports from China (up 6.7 percent) and a $32.3 billion increase in imports from Mexico (up 10.3 percent). In percentage terms, the largest increases in imports between 2017 and 2018 were from the EU (12.3 percent), followed by India (11.8 percent) and Mexico (10.3 percent).

Table 1.5 U.S. merchandise general imports from major trading partners and the world, 2017–18, ranked by general imports 2018

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

Source: DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.6 .

Source: DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.6 .

U.S. Trade with Free Trade Agreement Partners

In 2018, two-way merchandise trade (total exports plus general imports) between the United States and its FTA partners totaled $1.6 trillion, accounting for 39.1 percent of total U.S. merchandise trade with the world ($4.2 trillion). [43] This was higher than in 2017, when the value of two-way merchandise trade between the United States and its FTA partners was $1.5 trillion; however, the share in 2018 was only slightly higher than 2017, when trade with FTA partners accounted for 39.0 percent of total U.S. merchandise trade.

The value of U.S. imports for consumption [44] entered under FTAs was $408.0 billion in 2018, a 5.8 percent increase from the 2017 value of $385.7 billion. These imports accounted for 47.3 percent of all imports from FTA partners in 2018 and for 16.1 percent of total U.S. imports from the world.

U.S. Imports under Trade Preference Programs

U.S. imports under trade preference programs increased by 3.2 percent, from $35.0 billion in 2017 to $36.1 billion in 2018; they accounted for 1.4 percent of total U.S. imports during 2018, whereas in 2017 they accounted for 1.5 percent of all imports. Imports that claimed eligibility under the U.S. Generalized System of Preferences program totaled $23.6 billion in 2018; imports under the African Growth and Opportunity Act totaled $10.8 billion; imports under the Caribbean Basin Economic Recovery Act and the Caribbean Basin Trade Partnership Act totaled $1.7 billion; imports under the Haiti initiatives totaled $0.7 billion; and imports under the Nepal Trade Preference Program totaled $0.003 billion ($3.1 million). [45]

U.S. Trade in Services in 2018

Total U.S. cross-border trade in private services (hereafter “services”) grew by 3.8 percent between 2017 and 2018. [46] During that period, U.S. exports of services increased by 3.4 percent from $779.3 billion to $805.7 billion, while U.S. services imports grew 4.3 percent from $521.8 billion to $544.3 billion. [47] The U.S. surplus in cross-border services trade increased 1.5 percent in 2018 to $261.4 billion (figure 1.7). All of the 10 largest U.S. services export categories grew in 2018. The services export categories with the highest growth rates in 2018 included maintenance and repair services (15.2 percent), professional and management consulting services (10.0 percent), and air transport (8.6 percent). U.S. imports of services grew in 8 of the top 10 services import categories, with declines in insurance services (down 16.0 percent) and research and development services (down 1.7 percent).

Source: USDOC, BEA, Interactive data, International Transactions, Services, and International Investment Position, International Transactions, Table 3.1, “U.S. International Trade in Services,” June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

U.S. Services Trade by Product Category [48]

Exports

U.S. travel services exports, valued at $214.7 billion in 2018, accounted for the largest share (26.6 percent) of total U.S. cross-border services exports in 2018 (appendix table A.8). [49] Other major U.S. services export categories included charges for the use of intellectual property not included elsewhere (n.i.e.) [50] ($128.8 billion or 16.0 percent of total exports), financial services [51] ($112.0 billion or 13.9 percent), and professional and management consulting services ($86.8 billion or 10.8 percent). Total U.S. services exports grew by 3.4 percent in 2018, slightly slower than the 5.2 percent growth recorded in 2017. Maintenance and repair services n.i.e. [52] grew the fastest, increasing by 15.2 percent in 2018, compared to 6.9 percent growth in 2017. Professional and management consulting services also experienced rapid growth, rising 10.0 percent in 2018, compared to 5.9 percent in 2017. However, 6 of the 10 services categories experienced slower growth in 2018 than in previous years. These notably included technical, trade-related, and other business services (rising 1.2 percent in 2018, compared to 13.3 percent growth in 2017) and research and development services [53] (rising 0.8 percent in 2018, compared to 10.3 percent growth in 2017).

Imports

Travel services also accounted for the largest share of U.S. cross-border services imports in 2018 ($144.5 billion or 26.5 percent of total U.S. cross-border services imports) (appendix table A.9). Other categories with large shares included charges for the use of intellectual property n.i.e. ($56.1 billion or 10.3 percent), professional and management consulting services ($47.6 billion or 8.7 percent), insurance services ($42.5 billion or 7.8 percent), and air passenger fares ($42.0 billion or 7.7 percent). The fastest-growing categories of services imports were professional and management consulting services; technical, trade-related, and other business services; [54] air passenger fares; and financial services (with growth rates of 12.8 percent, 10.6 percent, 8.1 percent, and 8.1 percent, respectively). By comparison, U.S. imports in 2 of the top 10 services categories fell in 2018. Imports of both insurance services and research and development services declined in 2018 following growth in 2017; insurance services fell 16.0 percent [55] after an increase of 0.9 percent in 2017, while research and development services fell 1.7 percent after an increase of 3.4 percent in 2017.

U.S. Services Trade with Leading Partners

In 2018, the EU was the largest market for U.S. services exports and the largest foreign supplier of U.S. services imports (table 1.6). [56] In that year, the EU accounted for $251.8 billion (31.3 percent) of total U.S. services exports and $198.6 billion (36.6 percent) of total U.S. services imports (figures 1.8 and 1.9). [57] Following the EU, the top markets for U.S. services exports were Canada, China, and Japan, while the top sources of imports were Canada, Japan, and India. The United States maintained a services trade surplus with every major services trading partner except for India, with which it posted a $4.8 billion deficit in 2018. [58] The posted U.S. trade deficits with India in 2018 are primarily in telecommunications and other business services sectors, such as research and development services and professional and management consulting services. [59] While the U.S. trade deficit in other business services widened by $1.0 billion during 2017–18, the total private services trade deficit with India has remained steady at $4.8 billion due to a $1.0 billion increase in the trade balance in travel services over the same period. Before 2018, the total private services trade deficit with India had decreased steadily each year from $7.5 billion in 2014 to $4.8 billion in 2017.

Table 1.6 U.S. cross-border trade in private services with major trading partners and the world, 2018 (million dollars)

Source: USDOC, BEA, Interactive data, International Transactions, Services, and International Investment Position, International Transactions, table 3.2 and 3.3, “U.S. International Trade in Services, by Area and Country,” June 20, 2019.

a U.S. imports from the EU in 2018 are overstated because the data include government goods and services n.i.e.

Source: USDOC, BEA, Interactive data, International Transactions, Services, and International Investment Position, International Transactions, tables 3.2 and 3.3, “U.S. International Trade in Services, by Area and Country,” June 20, 2019.

Note: Data are preliminary. Because of rounding, figures may not add to 100 percent. Underlying data can be found in appendix table B.8 .

Source: USDOC, BEA, Interactive data, International Transactions, Services, and International Investment Position, International Transactions, tables 3.2 and 3.3, “U.S. International Trade in Services, by Area and Country,” June 20, 2019.

Note: Data are preliminary. Because of rounding, figures may not add to 100 percent. Underlying data can be found in appendix table B.8 .

Timeline of Selected Key Trade Activities in 2018

The following timeline presents selected key trade events between the United States and its trading partners in 2018. Some of these developments are presented in more detail in chapters 2 through 6.

Source: Compiled from official and private sources, including the U.S. Department of Agriculture, Office of the U.S. Trade Representative, White House, Federal Register , Asia-Pacific Economic Cooperation, Organisation for Economic Co-operation and Development, World Trade Organization, Government of South Korea, Embassy of Armenia to the United States, U.S. Embassy in Laos, and Inside U.S. Trade .

Chapter 2 Administration of U.S. Trade Laws and Regulations

This chapter surveys activities related to the administration of U.S. trade laws during 2018, covering import relief laws, laws against unfair trade practices, national security investigations, trade adjustment assistance programs, and tariff preference programs. Tariff preference programs encompass the U.S. Generalized System of Preferences, the Nepal Trade Preferences Act, the African Growth and Opportunity Act, and the Caribbean Basin Economic Recovery Act, including initiatives aiding Haiti. [60]

Import Relief Laws

Safeguard Actions

This section covers safeguard actions under statutes administered by the Commission, including the global safeguard provisions in sections 201–204 of the Trade Act of 1974, [61] and statutes implementing safeguard provisions in various bilateral free trade agreements involving the United States. The Commission conducted no new safeguard investigations during 2018 under sections 201–204 of the Trade Act of 1974 or under any of the provisions that implement safeguard provisions in free trade agreements involving the United States.

Two global safeguard measures, however, were in effect during most of 2018. In early 2018, the President imposed new safeguard measures on imports of crystalline silicon photovoltaic cells (CSPV cells) [62] and of large residential washers (washers). [63] On January 23, 2018, the President issued Proclamation 9693 “to facilitate positive adjustment to competition from imports of certain crystalline silicon photovoltaic cells (whether or not partially or fully assembled into other products) and for other purposes.” The proclamation imposed a tariff-rate quota on imports of solar cells not partially or fully assembled into other products and an increase of duties on imports of modules for a period of four years, with annual reductions in the second, third, and fourth years. The measure was made effective as of February 7, 2018, and applied to imports from all countries except certain developing countries. [64] Also on January 23, 2018, the President issued Proclamation 9694 “to facilitate positive adjustment to competition from imports of large residential washers.” The proclamation imposed a tariff-rate quota on imports of washers and a tariff-rate quota on imports of covered washer parts for a period of three years and one day, with annual reductions in the second and third years. The measure was made effective as of February 7, 2018, and applied to imports from all countries except for products of Canada and certain developing countries. [65]

The President imposed the measures after receiving affirmative serious injury determinations and remedy recommendations from the Commission in late 2017. The Commission made the determinations and recommendations following the completion of investigations. It had instituted the investigations for CSPV cells and washers in May and June 2017, respectively, following receipt of petitions filed by domestic producers of the named articles. [66] The global safeguard measures issued in January 2018 were the first such measures imposed by the President since 2002, when the President imposed measures on imports of certain steel products.

Laws against Unfair Trade Practices

Section 301

Section 301 of the Trade Act of 1974 is the principal U.S. statute for addressing unfair foreign practices affecting U.S. exports of goods or services. [67] Section 301 may be used to enforce U.S. rights under bilateral and multilateral trade agreements or to respond to unjustifiable, unreasonable, or discriminatory foreign government practices that burden or restrict U.S. commerce. Interested persons may petition the Office of the U.S. Trade Representative (USTR) to investigate foreign government policies or practices, or USTR may initiate an investigation itself.

If the investigation involves a trade agreement and consultations do not lead to a mutually acceptable resolution, section 303 of the Trade Act of 1974 requires USTR to use the dispute settlement procedures available under the agreement in question. If the matter is not resolved by the conclusion of the consultations, section 304 of the Trade Act of 1974 requires USTR to determine whether the practices in question fulfill any of three conditions: (1) they deny U.S. rights under a trade agreement; (2) they are unjustifiable, and burden or restrict U.S. commerce; or (3) they are unreasonable or discriminatory, and burden or restrict U.S. commerce. If the practices fulfill either of the first two conditions, USTR must take action. [68] If the practices fulfill the third condition—that is, if they are unreasonable or discriminatory, and they burden or restrict U.S. commerce—USTR must determine whether action is appropriate. [69] In either case, the USTR must determine the appropriate action to take in response to the practice. The time period for making these determinations varies according to the type of practices alleged.

Section 301 Investigations

During 2018, there were two ongoing section 301 investigations: first, on various European Union (EU) meat hormone directives, which prohibit the use of certain hormones that promote growth in farm animals; and a second, a USTR self-initiated investigation under section 301 regarding China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.

EU Meat Hormones. The first section 301 investigation that was active during 2018 related to a longstanding dispute with respect to EU measures concerning meat and meat products. The investigation concerned various meat hormone directives of the EU, which prohibit the use of certain hormones that promote growth in farm animals. The United States had successfully challenged the EU measures at the WTO, and in 1999 had imposed additional ad valorem duties [70] of 100 percent on about $117 million in imports from the EU in retaliation for the EU measures. [71]

After a series of consultations aimed at resolving the dispute, on May 13, 2009, the United States and the EU signed a memorandum of understanding (MOU). [72] Under the MOU, the EU agreed to establish a tariff-rate quota (TRQ) [73] with an in-quota tariff rate of zero for high-quality beef in the amount of 20,000 metric tons (mt). [74] The MOU was later revised, establishing a TRQ for high-quality beef in the amount of 45,000 mt, open to the United States and other qualifying suppliers. [75]

In February 2016, Congress amended section 301 to authorize USTR to reinstate any additional duties that had been previously imposed under section 301 and then subsequently terminated. [76] The 2016 amendment provides that USTR may reinstate a section 301 action following receipt of a written request from a petitioner or any representative of the domestic industry. It requires that USTR, following the receipt of such a request, consult with the petitioner and representatives of the domestic industry and provide an opportunity for public comments. In addition, it requires that USTR review the effectiveness of the reimposed additional duties. The amendment also allows USTR to suspend concessions in the meat hormone dispute with the EU.

On December 9, 2016, representatives of the U.S. beef industry filed a request with USTR asking that the additional duties be reinstated. [77] In 2017, USTR held a hearing [78] and engaged in discussions with the EU about possible modifications of the TRQ for high-quality beef. [79] In September 2018, the EU Commission requested a mandate from the EU Council to negotiate with the United States, suggesting that the United States be allocated a part of the existing quota that is also available to other qualifying exporting countries. [80] The EU Council adopted the mandate in October 2018, enabling formal negotiations to begin. [81] According to European Commissioner for Agriculture Phil Hogan, the negotiation “will not entail any changes to the level of the existing quota or the quality of beef imported into the EU.” [82]

China Technology Transfer. On August 14, 2017, the President issued a memorandum directing USTR to determine, pursuant to section 302(b) of the Trade Act of 1974, whether to investigate any of China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights (IPRs), innovation, or technology development. [83] In accordance with the President’s memorandum, on August 18, 2017, USTR initiated an investigation to determine whether any acts, policies, or practices of the government of China related to technology transfer, intellectual property, or innovation are unreasonable or discriminatory and whether the acts, policies, or practices burden or restrict U.S. commerce. [84]

Following publication of a report under section 302(b) of the Trade Act of 1974 on March 22, 2018, [85] and a determination under section 301(b) of the Trade Act of 1974 that certain acts, policies, and practices by China are unreasonable or discriminatory and burden or restrict U.S. commerce, USTR (1) initiated a World Trade Organization (WTO) dispute by requesting consultations with China regarding certain specific aspects of China’s technology regulations, and (2) at the direction of the President, determined to impose additional 25 percent duties on certain Chinese products with an annual trade value of approximately $50 billion. [86] In response to the U.S. action, China imposed retaliatory tariffs on U.S. goods. In accordance with the specific direction of the President, the USTR determined to modify the prior action in the investigation by imposing additional duties on products of China with an approximate trade value of $200 billion. [87] These tariffs went into effect on September 24, 2018. [88]

The Trade Representative determined that the following actions by China are unreasonable or discriminatory and burden or restrict U.S. commerce: [89]

• China uses foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.

• China’s regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients.

• China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate the transfer of technology to Chinese companies.

• China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets. [90]

The Trade Representative determined to address the second category of acts, policies, and practices (involving technology-licensing regulations) through recourse to WTO dispute settlement. [91] USTR initiated a WTO dispute on March 23, 2018, titled China—Certain Measures Concerning the Protection of Intellectual Property Rights (DS542). [92] This report also describes this dispute in the WTO dispute settlement section in chapter 3.

USTR imposed the added 25 percent ad valorem duties on certain Chinese goods in two tranches after public comment and public hearings. The first tranche covered 818 tariff subheadings, with an approximate annual trade value of $34 billion, and the second tranche covered 279 tariff subheadings, with an approximate annual trade value of $16 billion. [93] USTR established a process under which U.S. interests may request that particular products classified within a tariff subheading be excluded from the additional 25 percent duties. On December 21, 2018, USTR approved approximately 1,000 exclusion requests, and stated it would continue to issue decisions on pending requests on a periodic basis. [94]

As noted above, at the direction of the President, the USTR determined to modify the prior action by imposing additional duties on products of China with an approximate trade value of $200 billion. The rate of this additional duty was set initially at 10 percent ad valorem and took effect September 24, 2018. This rate was scheduled to increase to 25 percent ad valorem on March 2, 2019. [95]

USTR issued an update of its March 2018 report on November 21, 2018. The update explained “that China fundamentally had not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and that in certain areas, China’s acts, policies, and practices had become of even greater concern.” [96]

Special 301

The Special 301 law [97] requires that USTR annually identify and issue a list of foreign countries that (1) deny adequate and effective protection of IPRs, or (2) deny fair and equitable market access to U.S. persons who rely on IPR protection. [98]

Under the statute, a country denies adequate and effective IPR protection if the country does not allow foreign persons “to secure, exercise, and enforce rights relating to patents, process patents, registered trademarks, copyrights, trade secrets, and mask works.” [99]

A country denies fair and equitable market access if it denies access to a market for a product that is protected by a copyright or related right, patent, trademark, mask work, trade secret, or plant breeder’s right using laws and practices that violate international agreements or that constitute discriminatory nontariff trade barriers. [100] A country may be found to deny adequate and effective IPR protection even if it is in compliance with its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). [101]

In addition, the Special 301 law directs USTR to identify so-called “priority foreign countries.” [102] Priority foreign countries are countries that have the most onerous or egregious acts, policies, or practices with the greatest adverse impact (actual or potential) on the relevant U.S. products, and that are not entering into good-faith negotiations or making significant progress in bilateral or multilateral negotiations to provide adequate and effective IPR protection. [103] The identification of a country as a priority foreign country triggers a section 301 investigation, [104] unless USTR determines that the investigation would be detrimental to U.S. economic interests. [105]

USTR has adopted a practice of naming countries to a “watch list” or a “priority watch list” when the countries’ IPR laws and practices fail to provide adequate and effective IPR protection, but the deficiencies do not warrant listing the countries as priority foreign countries. [106] The priority watch list identifies countries with significant IPR concerns that warrant close monitoring and bilateral consultation. If a country on the priority watch list makes progress, it may be moved to the watch list or removed from any listing. On the other hand, a country that fails to make progress may be raised from the watch list to the priority watch list or from the priority watch list to the list of priority foreign countries.

In February 2016, Congress enacted amendments to the Special 301 statute that provided that USTR should develop an action plan for each country that has been identified as a priority watch list country and that has remained on the priority watch list for at least one year. [107] The action plan should contain benchmarks designed to assist the country to achieve, or make significant progress toward achieving, adequate and effective protection of IPRs, and fair and equitable market access for U.S. persons that rely on IPR protection.

In the 2018 Special 301 review, USTR examined the adequacy and effectiveness of IPR protection in more than 100 countries. [108] In conducting the review, USTR focused on a wide range of issues and policies, including inadequate IPR protection and enforcement worldwide, compulsory technology licensing and transfer, and the unauthorized use of unlicensed software by foreign governments. [109]

Although no country was identified as a priority foreign country in the 2018 Special 301 Report , the report identified 12 countries on the priority watch list: Algeria, Argentina, Canada, Chile, China, Colombia, India, Indonesia, Kuwait, Russia, Ukraine, and Venezuela. [110] In addition, the report identified 24 countries on the watch list. [111]

In keeping China on the priority watch list, and continuing Section 306 monitoring, [112] the report highlighted the urgent need for fundamental structural changes to strengthen IPR protection and enforcement, as well as equitable market access for U.S. persons that rely on IPR protection. [113] The report cites many longstanding concerns, such as coercive technology transfer requirements, structural impediments to effective IPR enforcement, and widespread infringing activity, including trade secret theft, rampant online piracy and counterfeiting, and high levels of pirated and counterfeit exports. India remained on the priority watch list in 2018 due to a lack of measurable improvement to its IPR framework on issues—both longstanding and new—that have negatively affected U.S. rights holders over the past year. [114]

As part of the annual Special 301 process, USTR also issues a separate report on so-called notorious markets. USTR defines notorious markets as online or physical marketplaces that are reported to engage in or facilitate commercial-scale copyright piracy and trademark counterfeiting. The most recent report, 2018 Out-of-Cycle Review of Notorious Markets , was issued in April 2019. [115] The report highlights markets where the scale of this activity is such that it can cause significant harm to U.S. IPR holders. The 2018 report listed 33 online markets and 25 physical markets in 19 countries, including markets in China and India, “in which pirated or counterfeit products and services reportedly are available or that facilitate substantial piracy and counterfeiting.” [116]

The 2018 Notorious Markets list highlights free trade zones (FTZs) and the role they may play in facilitating trade in counterfeit and pirated goods. FTZs have become major facilitators of illegal and criminal activity, including the illicit trade in pirated and counterfeit goods, smuggling, and money laundering. FTZs are designated economic areas that are not subject to the customs duties, taxes, or normal customs procedures of their host countries. They can range in size from a single warehouse to entire harbors and cities encompassing thousands of businesses. FTZs are an increasingly important part of global trade, and they play a particularly prominent role in the economies of developing countries. The number of FTZs grew from 79 zones in 25 economies in 1975 to over 3,500 zones in 130 economies in 2018. [117]

Antidumping and Countervailing Duty Investigations and Reviews

Antidumping Investigations

The U.S. antidumping law is found in Title VII of the Tariff Act of 1930, as amended. [118] This law offers relief to U.S. industries that are materially injured by imports that are dumped—that is, sold at “less than fair value” (LTFV). The U.S. government provides a remedy by imposing an additional duty on LTFV imports.

Antidumping duties are imposed when (1) the U.S. Department of Commerce (USDOC) has determined that imports are being, or are likely to be, sold at LTFV in the United States, and (2) the Commission has determined that a U.S. industry is materially injured or threatened with material injury, or that the establishment of an industry in the United States is materially retarded, by reason of such imports. Such a conclusion is called an “affirmative determination.” Investigations are generally initiated in response to a petition filed with USDOC and the Commission by or on behalf of a U.S. industry, but can be self-initiated by USDOC. USDOC and the Commission each make preliminary determinations and, if the Commission’s preliminary determination is affirmative, then each agency will make final determinations during the investigation process.

In general, imports are considered to be sold at LTFV when a foreign firm sells merchandise in the U.S. market at a price that is lower than the “normal value” of the merchandise. [119] Generally, normal value is the price the foreign firm charges for a comparable product sold in its home market. [120] Under certain circumstances, the foreign firm’s U.S. sales price may also be compared with the price the foreign firm charges in other export markets or with the firm’s cost of producing the merchandise, taking into account the firm’s “selling, general, and administrative expenses” and its profit. Under the law, this latter basis for comparison is known as “constructed value.” [121] Finally, where the producer is located in a nonmarket economy, a comparison is made between U.S. prices and a “surrogate” normal value (its factors of production, as valued by use of a “surrogate” country). [122] A nonmarket-economy country means any foreign country that the administering authority determines does not operate on market principles of cost or pricing structures, so that prices paid on sales of merchandise in such country do not reflect the fair value of the merchandise. [123]

In all three instances, the amount by which the normal value exceeds the U.S. sales price is the “dumping margin.” The duty specified in an antidumping duty order reflects the weighted average dumping margins found by USDOC, both for the specific exporters it examined and for all other exporters. [124] This rate of duty (in addition to any ordinary customs duty owed) will be applied to subsequent imports from the specified producers/exporters in the subject country, but it may be adjusted if USDOC receives a request for an annual review. [125]

The Commission instituted 31 new antidumping investigations, and made 34 preliminary determinations and 52 final determinations in 2018. [126] As a result of affirmative final USDOC and Commission determinations, in 2018, USDOC issued 41 antidumping duty orders on 16 products from 22 countries (table 2.1). The status of all antidumping investigations active at the Commission during 2018—including, if applicable, the date of final action—is presented in appendix table A.10. A list of all antidumping duty orders and suspension agreements (agreements to suspend investigations) [127] in effect as of the end of 2018 appears in appendix table A.11.

Table 2.1 Antidumping duty orders that became effective during 2018 a

Source: Compiled by USITC from Federal Register notices.

a Antidumping duty orders become effective following final affirmative determinations by USDOC and the Commission. The rates in the table apply in addition to any ordinary customs duty owed.

Countervailing Duty Investigations

The U.S. countervailing duty law is also set forth in Title VII of the Tariff Act of 1930, as amended. It provides for the imposition of additional duties to offset (“countervail”) foreign subsidies on products imported into the United States. [128] In general, procedures for such investigations are similar to those under the antidumping law. Petitions are filed with USDOC (the administering authority) and with the Commission. Before a countervailing duty order can be issued, USDOC must find that a countervailable subsidy exists. In addition, the Commission must make an affirmative determination that a U.S. industry is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, because of the subsidized imports.

The Commission instituted 22 new countervailing duty investigations and made 25 preliminary determinations and 21 final determinations during 2018. USDOC issued 18 countervailing duty orders on 13 products from eight countries in 2018 as a result of affirmative USDOC and Commission determinations (table 2.2). The status of all countervailing duty investigations active at the Commission during 2018, and, if applicable, the date of final action, is presented in appendix table A.12. A list of all countervailing duty orders and suspension agreements [129] in effect at the end of 2018 appears in appendix table A.13.

Table 2.2 Countervailing duty orders that became effective during 2018 a

Source: Compiled by USITC from Federal Register notices.

a Countervailing duty orders become effective following final affirmative determinations by USDOC and the Commission. The rates in the table apply in addition to any ordinary customs duty owed.

Reviews of Outstanding Antidumping and Countervailing Duty Orders/Suspension Agreements

Section 751(a) of the Tariff Act of 1930 requires USDOC, if requested, to conduct annual reviews of outstanding antidumping duty and countervailing duty orders to ascertain the amount of any net subsidy or dumping margin and to determine compliance with suspension agreements. Section 751(b) also authorizes USDOC and the Commission, as appropriate, to review certain outstanding determinations and agreements after receiving information or a petition that shows changed circumstances. [130] Where a changed-circumstances review is directed to the Commission, the party that is asking to have an antidumping duty order or countervailing duty order revoked or a suspended investigation terminated has the burden of persuading the Commission that circumstances have changed enough to warrant revocation. [131] On the basis of either USDOC’s or the Commission’s review, USDOC may revoke an antidumping duty or countervailing duty order in whole or in part, or may either terminate or resume a suspended investigation.

The sunset process began in 1995. It is subject to section 751(c) of the Tariff Act of 1930, which requires both USDOC and the Commission to conduct “sunset” reviews of existing antidumping duty and countervailing duty orders and suspension agreements five years after their initial publication and five years after publication of any subsequent determination to continue them. These reviews are intended to determine whether revoking an order or terminating a suspension agreement would be likely to lead to the continuation or recurrence of dumping or a countervailable subsidy and to material injury. [132] If either USDOC or the Commission reach negative determinations, the order will be revoked or the suspension agreement terminated. During 2018, USDOC and the Commission instituted 34 sunset reviews of existing antidumping and countervailing duty orders or suspended investigations, [133] and the Commission completed 55 reviews. As a result of affirmative determinations by USDOC and the Commission, 50 antidumping duty and countervailing duty orders were continued. Appendix table A.14 lists, by date and action, the reviews of antidumping duty and countervailing duty orders and suspended investigations completed in 2018. [134]

Section 129 Investigations

Section 129 of the U.S. Uruguay Round Agreements Act sets out a procedure by which the Administration may respond to an adverse WTO panel or Appellate Body report concerning U.S. obligations under the WTO agreements on safeguards, antidumping, or subsidies and countervailing measures. Specifically, section 129 establishes a mechanism permitting USTR to request that the agencies concerned—USDOC and the Commission—issue a consistency or compliance determination, where such action is appropriate, to respond to the recommendations in a WTO panel or Appellate Body report. [135]

Hot-Rolled Steel from India . Following the December 19, 2014, adoption by the WTO Dispute Settlement Body (DSB) of the panel and Appellate Body reports in United States—Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (DS436), the United States stated its intent to implement the recommendations of the DSB in a manner that respects U.S. WTO obligations. [136] Subsequently, the Commission and USDOC issued consistency determinations pursuant to section 129 in March 2016 and May 2016, respectively. [137] On April 22, 2016, the United States notified the DSB that it had complied with the recommendations and rulings in this dispute. [138]

On March 29, 2018, India requested the establishment of a WTO panel pursuant to Articles 6 and 21.5 of the Dispute Settlement Understanding to review the consistency of the United States’ section 129 determinations with its WTO obligations. India challenged USDOC’s findings regarding “public body” specificity and the use of benchmarks, and the Commission’s price effects and impact findings, in their respective consistency determinations. India also claimed that the United States had failed to implement a DSB finding that a never-used portion of U.S. law was “as such” inconsistent with WTO obligations. [139] The parties have completed all briefing in this implementation proceeding, the panel has held its substantive meeting with the parties, and the dispute is currently under advisement. [140] The panel is expected to complete its work and issue its report in 2019. [141]

Large Residential Washers from South Korea . On September 26, 2016, the DSB adopted the panel and Appellate Body reports in United States—Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea (DS464). [142] On September 26, 2016, the United States stated that it intended to implement the recommendations of the DSB in this dispute in a manner that respects U.S. WTO obligations, and that it would need a reasonable period of time in which to do so. On April 13, 2017, an Article 21.3(c) arbitrator determined that the requested time period implementation would expire on December 26, 2017. [143]

On December 15, 2017, USTR requested that USDOC make a determination under section 129 of the Uruguay Round Agreements Act to address the DSB’s recommendations related to USDOC’s CVD investigation of large residential washers from South Korea. On December 18, 2017, USDOC initiated a section 129 proceeding, and completed that proceeding on June 4, 2018, with the issuance of a final determination in which USDOC revised certain aspects of its original determination. [144]

Section 337 Investigations

Section 337 of the Tariff Act of 1930, as amended, [145] prohibits certain unfair practices in the import trade, notably patent infringement. In this context, section 337 prohibits the importation into the United States, the sale for importation, and the sale within the United States after importation of articles that infringe a valid and enforceable United States patent, provided that an industry in the United States, relating to articles protected by the patent concerned, exists or is in the process of being established. [146] Similar requirements govern investigations involving infringement of other federally registered IPRs, including registered trademarks, registered copyrights, registered mask works, and registered vessel hull designs. In addition, the Commission has general authority to investigate other unfair methods of competition and unfair acts in the importation and sale of products in the United States (such as products manufactured abroad using stolen U.S. trade secrets), the threat or effect of which is to destroy or injure a U.S. industry, to prevent the establishment of a U.S. industry, or to restrain or monopolize trade and commerce in the United States. [147] The Commission may institute an investigation on the basis of a complaint or on its own initiative. [148]

If the Commission determines that a violation exists, it can issue an exclusion order directing U.S. Customs and Border Protection to block the imports in question from entry into the United States. The Commission can also issue cease and desist orders that direct the violating parties to stop engaging in the unlawful practices. The orders enter into force unless disapproved for policy reasons by USTR [149] within 60 days of issuance. [150]

During calendar year 2018, there were 130 active section 337 investigations and ancillary (secondary) proceedings, 64 of which were instituted that year. Of these 64 new proceedings, 50 were new section 337 investigations and 14 were new ancillary proceedings relating to previously concluded investigations. In 46 of the new section 337 investigations instituted in 2018, patent infringement was the only type of unfair act alleged. Of the remaining 4 investigations, 1 involved allegations of patent infringement and trademark infringement; 1 involved allegations of antitrust violations; 1 involved allegations of false advertising and unfair competition; and 1 involved allegations of registered and common law trademark infringement, trademark dilution, and trade dress infringement.

The Commission completed a total of 61 investigations and ancillary proceedings under section 337 in 2018, including 2 enforcement proceedings, 4 rescission proceedings, 2 proceedings relating to bond forfeiture and return, 1 remand proceeding, 2 modification proceedings, and 1 combined modification and rescission proceeding. [151] In addition, the Commission issued 3 general exclusion orders, 12 limited exclusion orders, and 34 cease and desist orders during 2018. The Commission terminated 26 investigations without determining whether there had been a violation. Of these terminated investigations, 15 were terminated on the basis of settlement agreements and/or consent orders, 9 were terminated based on withdrawal of the complaint, and 2 were terminated for other reasons. Commission activities involving section 337 proceedings in 2018 are presented in appendix table A.15.

Source: USITC calculations.

Note: Underlying data can be found in appendix table B.9 .

The section 337 investigations active in 2018 continued to involve a broad spectrum of products. As in prior years, technology products were the single largest category, with approximately 38 percent of the active proceedings involving computer and telecommunications equipment and another 6 percent involving consumer electronics. The second-largest category was pharmaceuticals and medical devices, which were at issue in about 13 percent of the active proceedings. Automotive, manufacturing, and transportation products were at issue in about 12 percent of the active proceedings, and small consumer products were at issue in about 9 percent of the proceedings (figure 2.1). The remaining 22 percent of active proceedings involved a wide variety of other types of articles, including toner cartridges, heavy-duty industrial mats, LED concert lights, beer dispensers, convertible sofas, arrow rests, baby formula supplements, carburetors, refrigerator water filters, cover plates for switches and outlets, and strength training systems.

At the close of 2018, 69 section 337 investigations and related proceedings were pending at the Commission. As of December 31, 2018, there were 114 exclusion orders based on violations of section 337 in effect. Appendix table A.16 lists the investigations in which these exclusion orders were issued. Copies of the exclusion orders are available on the Commission’s website at https://www.usitc.gov/intellectual_property/exclusion_orders.htm . For additional detailed information about 337 investigations instituted since October 1, 2008, see the Commission’s “337Info” database, found at https://pubapps2.usitc.gov/337external .

National Security Investigations

During 2018, USDOC completed two investigations and instituted two new investigations under the national security provisions in section 232 of the Trade Expansion Act of 1962. [152] In the two completed investigations, relating to steel and aluminum respectively and begun in 2017, the Secretary of Commerce (the Secretary) made affirmative findings and remedy recommendations. The President concurred with the Secretary’s findings in both investigations and issued proclamations imposing higher duties on the subject imports. The Secretary instituted two new investigations under section 232 in May and July 2018, respectively, on imports of automobiles and uranium. Both investigations were pending at the end of 2018.

On March 8, 2018, the President issued two proclamations, Proclamation 9705 and 9704, imposing higher tariffs on certain steel and aluminum products, respectively. The proclamations were issued following receipt of reports and findings from the Secretary under the national security provision, section 232 of the Trade Expansion Act of 1962. The higher tariffs—25 percent ad valorem on certain steel products, and 10 percent ad valorem on certain aluminum products—remained in effect for the duration of 2018 and were still in effect when this report was prepared in 2019. The President modified the proclamations several times during 2018 to exempt certain countries and products.

On May 23, 2018, the Secretary initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automobile parts. USDOC scheduled public hearings in the investigation for July 19–20, 2018. [153] The investigation was still in progress at the end of 2018. [154] For country-specific developments in this investigation, see the European Union, Canada, Mexico, Japan, and South Korea sections in chapter 6.

On July 18, 2018, the Secretary initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on the national security of imports of uranium. Interested parties were invited to submit written comments on the investigation by September 10, 2018; [155] this date was later extended to September 25, 2018. [156] The investigation was in progress at the end of 2018. [157]

Section 232 of the Trade Expansion Act requires the Secretary to submit a report to the President within 270 days of instituting an investigation. The report must include the Secretary’s findings “with respect to the effect of the importation of such article in such quantities or under such circumstances upon the national security” and his recommendations for action or inaction. The statute also provides that if the Secretary finds that the imported article “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security,” he must so advise the President in his report. [158]

Steel Proclamations

The Secretary initiated the steel investigation on April 19, 2017. On April 20, 2017, the President signed a memorandum directing the Secretary to proceed expeditiously in conducting the investigation. The Secretary transmitted his report to the President on his department’s national security investigation of U.S. steel imports on January 11, 2018. Based on findings in the report, the Secretary found “the present quantities and circumstance of steel imports are ‘weakening our internal economy’ and threaten to impair the national security as defined in Section 232.” He found that several important factors—including the level of global excess capacity, the level of U.S. imports, the reduction in basic U.S. oxygen furnace facilities since 2001, and the potential impact of further U.S. plant closures on capacity needed in a national emergency—supported recommending action under section 232. [159]

To address the threat and to enable U.S. steel producers to operate at about an 80 percent or better capacity utilization rate based on available capacity in 2017, the Secretary recommended two alternative courses of action: (1) apply a quota to imports of five categories of steel—flat, long, semi-finished, pipe and tube, and stainless (“subject steel”)—at a level of 63 percent of each country’s 2017 import levels, or (2) apply a tariff to imports of subject steel at a rate of 24 percent ad valorem. [160]

On March 8, 2018, the President issued Proclamation 9705, which imposed a tariff at a rate of 25 percent ad valorem on imports of subject steel, [161] but exempted imports of subject steel from Canada and Mexico pending ongoing discussions. [162] The President subsequently issued Proclamation 9711 of March 22, 2018, temporarily exempting Australia, Argentina, South Korea, Brazil, and the European Union (EU) from the tariff after having found satisfactory alternative means to address the national security concern. [163] The President subsequently issued several additional proclamations making further adjustments. [164]

Aluminum Proclamations

The Secretary initiated the investigation on aluminum imports on April 26, 2017. On April 27, 2017, the President signed a memorandum directing the Secretary to proceed expeditiously in conducting his investigation. The President further directed that if the Secretary found that aluminum was being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary should recommend actions and steps that should be taken to adjust aluminum imports so that they would not threaten to impair the national security. [165]

The Secretary transmitted his department’s report on U.S. aluminum imports to the President on January 19, 2018. In the report, the Secretary stated that “the present quantities and circumstances of aluminum imports are ‘weakening our internal economy’ and threaten to impair the national security as defined in Section 232.” He further stated that “the U.S. Department of Defense and critical domestic industries depend on large quantities of aluminum”; that “import trends have left the United States almost totally reliant on foreign producers of primary aluminum” (i.e., unwrought aluminum that is not from recycled sources); that “the United States is at risk of becoming completely reliant on foreign producers of high-purity aluminum essential for key military and commercial systems”; and that “the domestic aluminum industry is at risk of becoming unable to satisfy existing national security needs or respond to a national security emergency that requires a large increase in domestic production.” [166]

The Secretary again recommended two alternative courses of action. He recommended that the President (1) impose a worldwide quota on imports of primary aluminum and five types of wrought aluminum (collectively “subject aluminum” [167] ) at a level of 86.7 percent of 2017 import levels, or apply a tariff on all imports of subject aluminum at a rate of 7.7 percent ad valorem; or (2) impose a tariff on imports of subject aluminum from a subset of economies (China, Hong Kong, Russia, Venezuela, and Vietnam) at a rate of 23.6 percent ad valorem. The Secretary stated that these five economies “are the source of substantial imports due to significant overcapacity, and/or are potential unreliable suppliers or likely sources of transshipped aluminum from China.” [168]

On March 8, 2018, the President issued Proclamation 9704, which imposed a tariff at a rate of 10 percent ad valorem, in addition to the current rate of duty, on imports of subject aluminum, but exempted imports of subject aluminum from Canada and Mexico pending ongoing discussions. [169] The President subsequently issued Proclamation 9710, temporarily exempting Australia, Argentina, South Korea, Brazil, and the EU from the tariff after having found satisfactory alternative means to address the national security concern, [170] and later issued additional proclamations making further adjustments. [171]

Trade Adjustment Assistance

For several decades, the United States has provided trade adjustment assistance (TAA) to aid U.S. workers and firms adversely affected by import competition. [172] On June 29, 2015, President Barack Obama signed into law the Trade Preferences Extension Act (TPEA). Title IV of the TPEA—the Trade Adjustment Assistance Reauthorization Act of 2015 (TAARA 2015)—amended and reauthorized TAA for six years, until June 30, 2021. [173] The main TAA programs in effect in fiscal year (FY) 2018 were TAA for Workers, administered by the U.S. Department of Labor (USDOL), and TAA for Firms, administered by the U.S. Department of Commerce (USDOC). A third program, TAA for Farmers, administered by the U.S. Department of Agriculture (USDA), was reauthorized by Congress under the TPEA of 2015. [174] However, the U.S. Congress did not appropriate funding for new participants in this program for FY 2018. [175] As a result, USDA did not accept any new petitions or applications for benefits in FY 2018. [176]

Selected developments in the TAA programs for workers and firms during FY 2018 are summarized below. [177]

Assistance for Workers

The provisions relating to TAA for Workers are set out in chapter 2 of title II of the Trade Act of 1974. [178] The program provides federal assistance to eligible workers who have been adversely affected by import competition. The TAA program offers a variety of benefits and services to eligible workers, including training, help with healthcare premium costs, trade readjustment allowances, reemployment assistance, and employment and case management services. [179] Current information on provisions of the TAA for Workers program, as well as detailed information on program eligibility requirements, benefits, and available services, is available at USDOL’s Employment and Training Administration (ETA) website for TAA, https://www.doleta.gov/tradeact/ .

For petitioning workers to be eligible to apply for TAA, the Secretary of Labor must determine that they meet certain criteria relating to the reasons they were separated from their firm, including declining sales or production at their firm and increased imports of like or directly competitive articles. [180] (Workers often apply in groups based on their former firms.) Workers at firms that are or were suppliers to or downstream users of the output of TAA-certified firms may also be eligible for TAA benefits. [181]

In 2018, $667.1 million was allocated to state governments to fund the TAA for Workers program. This funding included $397.9 million for “training and other activities,” which includes funds for training, job search allowances, relocation allowances, employment and case management services, and related state administration; $242.6 million for trade readjustment allowance benefits; and $26.7 million for reemployment trade adjustment assistance benefits. [182]

Groups of workers submitted 1,178 petitions for TAA in FY 2018, up 13.6 percent from the 1,037 petitions filed in FY 2017. USDOL certified 895 petitions covering 76,902 workers as eligible for TAA, and denied 217 petitions covering 17,374 workers. [183] The largest number of petitions certified in FY 2018 was in the Midwest census region, followed by the West, Northeast, and South (table 2.3). [184] By state, California had the most workers certified (6,193 workers), followed by Texas (5,125), Oregon (4,482), Pennsylvania (4,463), and Ohio (4,241). [185]

Table 2.3 TAA certifications, by region, FY 2018

Source: USDOL, ETA, email message to USITC staff, May 30, 2019.

The majority (57.2 percent, 512 petitions) of the TAA petitions certified during FY 2018 were in the manufacturing sector, covering 50,849 workers, followed by the professional, scientific, and technical services sector (14.2 percent, 127 petitions) and the finance and insurance sector (5.7 percent, 51 petitions) (figure 2.2). [186]

Source: USDOL, ETA, email message to USITC staff, June 8, 2019.

a “Other” includes all industry sectors where less than 20 petitions were certified in FY 2018.

Note: Underlying data can be found in appendix table B.10 .

Assistance for Firms

The TAA for Firms program [187] provides technical assistance to help U.S. firms experiencing a decline in sales and employment to become more competitive in the global marketplace. [188] The program provides cost-sharing technical assistance to help eligible businesses create and implement targeted business recovery plans. The program pays up to 75 percent of the costs of developing the recovery plans, with firms also contributing a share of the cost of creating and implementing their recovery plans. [189] Current information on provisions of the TAA for Firms program, as well as detailed information on program eligibility requirements, benefits, and available services, is available at USDOC’s Economic Development Administration (EDA) website for TAA, http://www.taacenters.org/ .

To be eligible for the program, a firm must show that an increase in imports of like or directly competitive articles “contributed importantly” to the decline in sales or production and to the separation or threat of separation of a significant portion of the firm’s workers. [190] The program supports a nationwide network of 11 nonprofit or university-affiliated Trade Adjustment Assistance Centers to help firms to apply for a certification of eligibility and prepare and to implement a business recovery plan or adjustment proposal. [191] Firms generally have up to five years to implement an approved adjustment proposal. [192]

In FY 2018, EDA awarded a total of $13 million in TAA for Firms Program funds to its national network of 11 Trade Adjustment Assistance Centers. [193] During FY 2018, EDA certified 82 petitions for eligibility and approved 98 adjustment proposals. [194]

Tariff Preference Programs

Generalized System of Preferences

The U.S. Generalized System of Preferences (GSP) program authorizes the President to grant duty-free access to the U.S. market for about 3,500 products that are imported from designated developing countries and territories. [195] Certain additional products (about 1,500 products) are allowed duty-free treatment only when originating from countries designated as least-developed beneficiary developing countries (LDBDCs). [196] The President’s authority to provide duty-free treatment under the GSP program, which had expired on December 31, 2017, was reauthorized on March 23, 2018, with retroactive coverage from January 1, 2018, through December 31, 2020. The renewal also made technical modifications to procedures for competitive need limitations (CNLs) and waivers. [197]

The goal of the GSP program is to accelerate economic growth in developing countries by offering unilateral tariff preferences for imports into the U.S. market. [198] An underlying principle of the GSP program is that the creation of trade opportunities for developing countries encourages broader-based economic development and creates momentum for economic reform and liberalization. [199]

Countries are designated as “beneficiary developing countries” under the GSP program by the President. However, they can lose this designation based on findings of country practices that violate the provisions of the GSP statute, including inadequate protection of IPRs or of internationally recognized worker rights. [200] Complaints about such violations (“country practice allegations”) are usually brought to the attention of the interagency GSP subcommittee by a petition process; the subcommittee may launch a country practice review in response.

The President also designates the articles that are eligible for duty-free treatment, but may not designate articles that he determines to be “import sensitive” in the context of the GSP. Rather, certain goods (e.g., most footwear, textiles, and apparel) are designated by statute as “import sensitive” and thus not eligible for duty-free treatment under the GSP program. The statute further provides that countries “graduate” from the program when they become “high income,” as defined by the World Bank’s per capita income tables. [201] In addition, the statute allows for ending the eligibility of certain imports, or imports from specific countries, under certain conditions.

Competitive need limitations (CNLs) are another important part of the GSP program’s structure. CNLs are quantitative ceilings on GSP benefits for each product and beneficiary developing country. [202] The GSP statute provides that a beneficiary developing country will lose its GSP eligibility with respect to a product if the CNLs are exceeded, though waivers may be granted under certain conditions. Two different measures for CNLs may apply to U.S. imports of a particular product from a beneficiary developing country during any calendar year. One CNL measure applies to imports from a beneficiary developing country that account for 50 percent or more of the value of total U.S. imports of that product. The other applies to imports that exceed a certain dollar value ($185 million in 2018). [203]

In addition, the legislation to reauthorize the GSP program in 2006 provided that a CNL waiver should be revoked under certain circumstances: (1) if it has been in effect on a product for five or more years, and (2) if total U.S. imports from a beneficiary developing country exceed certain “super-competitive” value thresholds—that is, 75 percent of all U.S imports or 150 percent of the current year’s CNL dollar limit. [204]

The following developments with respect to the U.S. GSP program occurred in 2018: [205]

• Public Law 115-141 established a new timeline for the GSP review: The date for exclusion of items exceeding CNLs changed from July 1 to November 1. Public Law 115-141 also changed the time period used to determine whether a product is not produced in the United States. Under prior law, the time period was a specific date for determining whether a like or directly competitive domestic product was not produced in the United States. That date was January 1, 1995. Public Law 115-141 amended the law to state that the product must not have been produced in the United States ‘‘in any of the. . . three calendar years’’ before the annual review. For the 2017/2018 Annual Review this means calendar years 2015 to 2017. [206]

• Presidential Proclamation 9687 of December 22, 2017, also partially removed GSP eligibility from Ukraine, effective April 26, 2018, as the result of a country practice review of Ukraine’s protection of IPRs. This partial removal covered 147 subheadings in the Harmonized Tariff Schedule of the United States (HTS). Ukraine had previously lost its GSP eligibility in 2001, also because of its failure to adequately protect IPRs, but was reinstated in 2006. [207]

• Presidential Proclamation 9687 of December 22, 2017, ended the total suspension of Argentina’s GSP benefits, effective January 1, 2018. Argentina’s GSP benefits had been suspended in March 2012, based on Argentina’s failure to enforce arbitral awards in good faith. However, Argentina’s GSP benefits had previously been partially removed as the result of a country practice review of Argentina’s protection of IPRs. That earlier partial suspension was not ended by Proclamation 9687, in light of ongoing concerns with Argentina’s protection of IPRs. [208]

• The GSP Subcommittee initiated country practice reviews of India, [209] Indonesia, Kazakhstan, and Thailand, and held a public hearing on those GSP countries on June 19, 2018. [210] USTR also initiated a country practice review for Turkey on August 16, 2018. [211]

• Results of the 2017/2018 GSP Annual Review included denial of petitions to add nine products to the list of those eligible to all GSP beneficiary countries. The products that were not added included certain fresh pears; certain melon and citrus peel; cottonseed; crude sunflower and safflower oil; preserved or prepared apples; three different types of acids; and rubber transmission V-belts. The products remain eligible for GSP benefits, however, for least-developed beneficiary countries (LDBCs) only. Tart cherry juice concentrate and other cherry juice was removed from GSP eligibility for Turkey. A petition to remove non-adhesive plates and sheets of polymethyl methacrylate from GSP for Indonesia and Thailand was denied. De minimis CNL waivers were not granted for 92 eligible products. [212] One product (ammonium perrhenate from Kazakhstan) that had been excluded during prior GSP reviews, but for which import levels had dropped below the threshold amounts set for the current review, was redesignated as GSP eligible. The President denied four other petitions for redesignations. [213]

U.S. imports under GSP preferences rose 10.7 percent, from $21.3 billion in 2017 to $23.6 billion in 2018 (table 2.4). These imports accounted for 9.9 percent of total U.S. imports from GSP beneficiary countries and 0.9 percent of U.S. imports from all countries (tables 2.4 and A.2). The GSP utilization rate for 2018 (total imports claimed under GSP as a share of eligible imports from GSP countries) was 49.3 percent, slightly down (0.6 percentage points) from 2017.

India was the leading source of imports entered under the GSP program in 2018, followed by Thailand and Brazil, continuing a pattern established in 2011 (appendix table A.17). These three countries together accounted for 55.6 percent of all U.S. imports under GSP in 2018, while the top five countries (including Indonesia and Turkey) accounted for 73.2 percent of GSP imports. U.S. imports from four of the top five countries increased in 2018 over the previous year; the exception was Brazil.

Table 2.4 U.S. imports for consumption from GSP beneficiaries, 2016–18

Source: USITC DataWeb/USDOC, May 23, 2019.

Note: Because of rounding, figures may not add up to totals shown. LDBDC = least-developed beneficiary developing country.

a LDBDC-eligible products are those for which the rate of duty of “free” appears in the special rate column of the HTS, followed by the symbol “A+” in parentheses. The symbol “A+” indicates that all LDBDCs (and only LDBDCs) are eligible for duty-free treatment with respect to all articles listed in the designated provisions.

b Non-LDBDC-eligible products are those for which a rate of duty of “free” appears in the special rate column of the HTS followed by the symbols “A” or “A*” in parentheses. The symbol “A” indicates that all beneficiary countries are eligible for duty-free treatment with respect to all articles listed in the designated provisions. The symbol “A*” indicates that certain beneficiary countries (specified in general note 4(d) of the HTS) are not eligible for duty-free treatment with respect to any article listed in the designated provision.

In 2018, the chemicals sector was again the top sector for imports claiming eligibility under GSP, up $724 million, an increase of 15.9 percent from 2017 (appendix tables A.18 and A.19). The minerals and metals sector ranked second in 2018, as it did in 2017, but imports claiming GSP decreased $399 million, a drop of 9.5 percent. Agricultural products made up the third-largest sector in 2018 and saw imports claiming GSP increase $448 million (13.6 percent) in 2018 over 2017. Energy-related products under GSP increased 872.2 percent, by far the largest percentage increase in 2018.

Among the top 15 U.S. imports under GSP in 2018, 10 imports increased in value over 2017 levels and 5 decreased in value from 2017 levels (appendix table A. 20). Gold jewelry imports were the leading GSP import product by value, but dropped 0.9 percent from 2017. Turkey, Indonesia, and South Africa accounted for 78.0 percent of this GSP trade. [214] Luggage and travel goods, recently added to GSP eligibility for all beneficiaries, were the second GSP import by value, increasing 154.5 percent over 2017. (Previously these were eligible just for LDBDCs and AGOA beneficiary countries.) [215] Ferrochromium was the third-highest GSP import by value, sourced primarily from South Africa. [216] GSP imports of ferrochromium were the second-highest GSP import in 2017, but dropped 24.0 percent in 2018 from the 2017 amount.

Nepal Trade Preference Program

The Nepal Trade Preferences Act (NTPA) was established under section 915 of the Trade Facilitation and Trade Enforcement Act of 2015. [217] This act entered into effect on December 30, 2016. [218] The Nepal Trade Preference Program, which was launched under the authority of NTPA, was designed to help Nepal’s economic recovery following a 2015 earthquake. [219] It is scheduled to expire on December 31, 2025. [220]

NTPA authorizes the President to provide preferential treatment to articles imported directly from Nepal into the United States if the President determines that Nepal meets certain requirements set forth in NTPA, in the African Growth and Opportunity Act (AGOA), and in GSP statutes. [221] NTPA originally gave Nepal duty-free access to the U.S. market for goods classified under 66 HTS 8-digit tariff lines, including certain luggage and flat goods in HTS chapter 42, certain carpets and floor coverings in chapter 57, some apparel in chapters 61 and 62, two non-apparel made-up textile articles in chapter 63, and various headwear items in chapter 65. [222] Nepal is eligible for duty-free treatment on 77 tariff lines, 31 of which are also duty free under GSP. [223] However, NTPA’s rules of origin differ from GSP’s; i.e., under NTPA, U.S. content may be counted towards part of the 35 percent value added requirement. [224]

In 2018, total U.S. imports from Nepal were $98.6 million; imports from Nepal under GSP were $9.2 million; and imports under NTPA were $3.1 million. Imports under NTPA represented 3.1 percent of total imports from Nepal, a slight rise from 2.6 percent in 2017, the first year of the program (table 2.5). U.S. Imports under NTPA and GSP as a share of all imports from Nepal that were eligible for NTPA and GSP preferences rose from 59.1 percent in 2017 to 62.2 percent in 2018.

Table 2.5 U.S. imports for consumption from Nepal, 2016–18

Source: USITC DataWeb/USDOC (accessed May 23, 2019).

a U.S. imports under NTPA were first recorded in 2017.

^b NTPP-eligible products are those for which a rate of duty of “free” appears in the special rate column of the HTS followed by the symbol “NP” in parentheses. The symbol “NP” indicates that Nepal is eligible for duty-free treatment with respect to all articles listed in the designated provisions. Includes imports for which preferential tariff treatment was claimed for NTPP-eligible goods by U.S. importers under GSP, for HTS rate lines with special duty symbols “A,” “A*”, or “A+.”

Africa Growth and Opportunity Act

Enacted in 2000, the African Growth and Opportunity Act (AGOA) gives tariff preferences to eligible sub-Saharan African (SSA) countries pursuing political and economic reform. [225] In particular, AGOA provides duty-free access to the U.S. market for all GSP-eligible products, and for more than 1,800 additional qualifying HTS 8-digit tariff-line items that are eligible under AGOA only. While AGOA’s eligibility criteria [226] and rules of origin [227] are similar to those of the GSP program, AGOA beneficiary countries are exempt from the GSP competitive need limitations (CNLs). [228] AGOA also provides duty-free treatment for certain apparel articles cut and sewn in designated beneficiary countries on the condition that additional eligibility criteria are satisfied. [229] The current AGOA expiration date is September 30, 2025. [230]

Each year, the President must consider whether individual SSA countries are, or remain, eligible for AGOA benefits based on the eligibility criteria. The Office of the U.S. Trade Representative (USTR) initiates this annual eligibility review with the publication of a notice in the Federal Register requesting comments and announcing a public hearing. In 2018, 40 SSA countries were eligible for AGOA benefits. [231] Of these countries, 28 were eligible for AGOA textile and apparel benefits for all or part of 2018. [232] Of the countries in the latter group, all but one (South Africa) were also eligible for additional textile and apparel benefits intended for lesser-developed beneficiary countries (LDBCs) for all or part of 2018. [233] Notable among these extra benefits is the third-country fabric provision for LDBCs. This provision provides duty-free treatment for certain apparel articles cut and sewn in designated beneficiary countries from non-U.S., non-AGOA fabrics as long as additional eligibility criteria are satisfied. [234] Meanwhile, as a result of the 2018 annual review of AGOA eligibility, Mauritania’s AGOA eligibility was terminated effective January 1, 2019; 39 SSA countries remain eligible for AGOA benefits in 2019. [235]

In addition to the annual review process, any interested party may submit a petition to USTR, at any time, with respect to whether a beneficiary SSA country is meeting the AGOA eligibility requirements for an out-of-cycle review. [236] On March 21, 2017, the U.S.-based Secondary Materials and Recycled Textiles Association filed a petition requesting an out-of-cycle review of AGOA eligibility for Kenya, Rwanda, Tanzania, and Uganda. The petition stated that a March 2016 decision by the four countries to raise tariffs and phase in a ban on imports of used clothing and footwear imposed a significant economic hardship on the U.S. used clothing industry. The petition further contended that the decision was a violation of the AGOA eligibility criteria, which included actions by beneficiary countries to eliminate barriers to U.S. trade and investment.

In response to the petition, on June 20, 2017, USTR initiated an out-of-cycle review of AGOA eligibility for Rwanda, Tanzania, and Uganda, but not Kenya. USTR explained that Kenya had taken steps to reverse the tariff increases, effective July 1, 2017, and had pledged not to ban imports of used clothing. [237] During the course of the out-of-cycle review, Tanzania and Uganda took similar actions to address the concerns raised in the petition. [238] Therefore, on March 29, 2018, the President determined that Tanzania and Uganda were meeting AGOA’s eligibility requirements. [239] On July 30, 2018, the President determined that Rwanda was no longer in compliance with AGOA’s eligibility requirements, and issued a proclamation suspending the application of duty-free treatment for all AGOA-eligible goods in the apparel sector from Rwanda, effective July 31, 2018. [240]

In 2018, the value of U.S. imports that entered free of duty from beneficiary countries under AGOA (including imports under GSP) was $12.0 billion, an 11.5 percent decline from 2017. These imports accounted for 48.8 percent of total imports from AGOA countries in 2018. In 2018, imports entering the United States exclusively under AGOA (excluding those entered under GSP) were valued at $10.8 billion, accounting for 43.9 percent of U.S. imports from AGOA countries (table 2.6). [241]

Table 2.6 U.S. imports for consumption from AGOA beneficiaries, 2016–18

Source: USITC DataWeb/USDOC (accessed May 23, 2019).

a AGOA-eligible products are those for which a rate of duty of “free” appears in the special rate column of the HTS followed by the symbol “D” in parentheses. The symbol “D” indicates that all AGOA beneficiaries are eligible for duty-free treatment with respect to all articles listed in the designated provisions. In addition, provisions of subchapters II and XIX of chapter 98 of the HTS set forth specific categories of AGOA-eligible products, under the terms of separate country designations enumerated in subchapter notes. Includes imports for which preferential tariff treatment was claimed for AGOA-eligible goods by U.S. importers under GSP, for HTS rate lines with special duty symbols “A,” “A*” (unless the AGOA beneficiary country is excluded), or “A+.”

b Imports under AGOA includes AGOA-eligible products that may be imported under both AGOA and GSP. It is up to the exporting country or importer to choose under which program it will claim preferential treatment.

The decline in U.S. imports under AGOA in 2018 compared to 2017 mainly reflected a decline in the value and quantity of imports of crude petroleum and passenger motor vehicles under the program. [242] The value of U.S. crude petroleum imports under AGOA fell 15.1 percent ($1.3 billion) from 2017 to 2018, and the quantity fell 36.2 percent (59.8 million barrels). [243] The value of U.S. imports of passenger motor vehicles under AGOA fell 54.6 percent ($644.0 million), and the quantity fell by 58.0 percent (25,043 units) (appendix A.22). [244] Nigeria, one of the top petroleum-producing countries in SSA, experienced significant declines in the value and quantity of its exports of crude petroleum to the United States under AGOA. Meanwhile, South Africa, the major SSA exporter of passenger motor vehicles to the United States, experienced considerable declines in the value and quantity of their exports of passenger motor vehicles to the United States under AGOA (appendix tables A.21 and A.22).

The major suppliers of duty-free U.S. imports under AGOA in 2018 were Nigeria (40.5 percent of total AGOA imports), Angola (18.1 percent), South Africa (13.8 percent), Chad (5.6 percent), Kenya (4.3 percent), and Ghana (3.1 percent). These six countries accounted for 85.3 percent of total imports by value under AGOA, a drop of 6.3 percentage points from 2017, mainly driven by a decline of U.S. imports under AGOA from Nigeria, Angola, and South Africa (appendix table A.21). [245]

Crude petroleum continued to be the leading import under AGOA. It accounted for 69.9 percent of the total value of AGOA imports in 2018, a 2.7 percentage point decline from 72.6 percent in 2017. The decline in value of U.S. crude petroleum imports under AGOA was mainly due to the decline of U.S. imports of such products from Nigeria.

Apparel products and passenger motor vehicles were two other major U.S. imports under AGOA. They accounted for 11.2 percent and 5.0 percent of the value of total AGOA imports in 2018, respectively (appendix table A.22). [246] U.S. passenger motor vehicle imports under AGOA came exclusively from South Africa, and they declined in value from $1.2 billion in 2017 to $534.5 million in 2018. The decline was driven in part by a fall in U.S. sales of imported C-Class Mercedes, which tend to come from South Africa and were mainly produced by Mercedes-Benz South Africa (MBSA). [247] U.S. imports of apparel products under AGOA were valued at $1.2 billion in 2018, an 18.4 percent increase from $1.0 billion in 2017. [248] The increase was mainly due to an increase in U.S. imports under AGOA from the major apparel-producing countries in SSA, such as Kenya, Lesotho, Madagascar, Ethiopia, and Ghana. [249]

Section 105 of AGOA required the President to establish the U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum (also known as the AGOA Forum) to discuss trade, investment, and development at an annual ministerial-level meeting with AGOA-eligible countries. [250] The 17th annual AGOA Forum was held in Washington, DC, on July 11–12, 2018. The theme of the forum was “Forging New Strategies for U.S.-Africa Trade and Investment.” Participants from the U.S. side included senior government officials, members of Congress, and private sector and civil society representatives. Participants from the African side were mainly trade and commerce ministers from the AGOA-eligible countries, heads of African regional economic communities, and representatives from the private sector and civil society. During the forum, U.S. Trade Representative Robert Lighthizer outlined the administration’s trade policy approach towards Africa, and announced the administration’s intention to establish a bilateral free trade agreement with an as-yet-undetermined African country. The ultimate goal, according to the Trade Representative, is to have a network of free trade agreements which could serve as building blocks to an eventual African continental trade partnership with the United States. [251]

Caribbean Basin Economic Recovery Act

The Caribbean Basin Economic Recovery Act (CBERA) was enacted in 1983 as part of the United States’ Caribbean Basin Initiative. Its goal was to encourage economic growth and development in the Caribbean Basin countries by using duty preferences to promote increased production and exports of nontraditional products. [252] The Caribbean Basin Trade Partnership Act (CBTPA) amended CBERA in 2000 and expanded the list of qualified articles for eligible countries to include certain apparel. [253] The CBTPA also extended “NAFTA-equivalent treatment”—that is, rates of duty equivalent to those accorded to goods complying with the rules of origin applicable under the North American Free Trade Agreement (NAFTA)—to a number of other products previously excluded from CBERA. These products included certain tuna; crude petroleum and petroleum products; certain footwear; watches and watch parts assembled from parts originating in countries not eligible for normal trade relations (NTR) rates of duty; and certain handbags, luggage, flat goods, work gloves, and leather wearing apparel. [254] Products that are still excluded from CBERA preferential treatment include textile and apparel products not otherwise eligible for preferential treatment under CBTPA (mostly textile products) and above-quota imports of certain agricultural products subject to tariff-rate quotas (primarily sugar, beef, and dairy products).

CBTPA preferential treatment provisions were extended in 2010 through September 30, 2020, while the original CBERA has no expiration date. [255] In the section that follows, the term CBERA refers to CBERA as amended by the CBTPA.

At the end of 2018, 17 countries and dependent territories were designated eligible for CBERA preferences, [256] and 8 of those countries were designated eligible for CBTPA preferences. [257] Several countries have asked to be designated as eligible for benefits under CBERA, CBTPA, or both, including Turks and Caicos Islands, which requested eligibility under CBERA; Aruba, The Bahamas, Dominica, Grenada, Montserrat, Saint Kitts and Nevis, and Saint Vincent and the Grenadines, under CBTPA; [258] and Sint Maarten and Suriname, under both CBERA and CBTPA. [259]

In 2018, the value of U.S. imports under CBERA increased by 9.1 percent to $1.7 billion from $1.5 billion in 2017 (table 2.7). The top five imports under CBERA in 2018—methanol (HTS subheading 2905.11), T-shirts (subheadings 6109.10 and 6109.90), and sweaters (subheadings 6110.20 and 6110.30)—comprised 65 percent of imports under the program (appendix table A.24). The largest increase in the value of U.S. imports under CBERA was in cotton T-shirts (subheading 6109.90), which increased by 28.9 percent to $106.2 million, primarily due to a 38.9 percent rise in the quantity imported. The next-largest increase in import value was in methanol, which rose by 18.4 percent to $447.7 million, despite a 3.4 percent drop in the quantity imported. However, the value of a number of U.S. imports under the program declined in 2018. U.S. imports of polystyrene declined by $13.8 million (17.6 percent), mostly because of a decrease in quantity imported of 12.2 percent; and U.S. imports of crude petroleum declined by $19.6 million (36.6 percent), mostly due to a decrease in quantity imported of 27.6 percent. [260]

Table 2.7 U.S. imports for consumption from CBERA/CBTPA beneficiaries, 2016–18

Source: USITC DataWeb/USDOC (accessed March–June 2019).

Note: The data for U.S. imports under CBERA include U.S. imports under CBERA as amended by both CBTPA and the HOPE and HELP Acts. In previous Year in Trade reports, trade data under the HOPE and HELP Acts were reported and analyzed separately only in the “Haiti Initiatives” section. Thus, numbers from the previous report are not comparable to the numbers in the table above. Beginning this year, USITC staff have tracked Census data of textile and apparel imports under HOPE/HELP at the shipment level. These data are cross-checked against aggregate figures from USDOC’S Office of Textiles and Apparel (OTEXA), which is part of the International Trade Administration, to ensure an accurate reporting of HOPE/HELP utilization rates.

a CBTPA-eligible products are those for which a special duty rate appears in the special rate column of the HTS, followed by the symbol “R” in parentheses. The symbol “R” indicates that all CBTPA beneficiary countries are eligible for special duty rate treatment with respect to all articles listed in the designated provisions. In addition, subchapters II and XX of chapter 98 set forth provisions covering specific products eligible for duty-free entry, under separate country designations enumerated in those subchapters (and including former CBTPA beneficiaries—El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, Costa Rica, and Panama).

b CBERA (excluding CBTPA)-eligible products are those for which a special duty rate appears in the special rate column of the HTS, followed by the symbols “E” or “E*” in parentheses. The symbol “E” indicates that all beneficiary countries are eligible for special duty rate treatment with respect to all articles listed in the designated provisions. The symbol “E*” indicates that certain articles, under general note 7(d) of the HTS, are not eligible for special duty treatment with respect to any article listed in the designated provision.

U.S. imports under CBERA accounted for 27.8 percent of all U.S. imports from CBERA countries in 2018 and for 65.9 percent of the U.S. imports from CBERA countries that were eligible for CBERA trade preferences. Haiti was the leading supplier of U.S. imports under the program in 2018, accounting for 56.8 percent of the total value. Haiti is the only supplier of apparel under CBERA. Trinidad and Tobago was the second leading supplier of U.S. imports under CBERA in 2018, accounting for 32.6 percent of the total value. Trinidad and Tobago was the sole supplier of several top U.S. imports under CBERA, including methanol, petroleum products, and melamine. Haiti and Trinidad and Tobago together supplied about 90 percent of U.S. imports under CBERA preferences. Jamaica and The Bahamas were the third and fourth leading suppliers, accounting for 5.0 and 3.9 percent of the total, respectively (appendix table A.23).

Haiti Initiatives

Starting in 2006, several amendments to CBERA have expanded and enhanced the trade benefits available to Haiti. These benefits give Haitian apparel producers more flexibility in sourcing yarns and fabrics beyond the preferences available under CBTPA, which rely on the use of U.S. yarns only. The Haitian Hemisphere Opportunity through Partnership Encouragement Act of 2006 (HOPE Act) [261] and of 2008 (HOPE II Act) [262] (collectively referred to as HOPE or the HOPE Acts) amended CBERA to expand the rules of origin for inputs to apparel and wire harness automotive components assembled in Haiti and imported into the United States. [263] The Haitian Economic Lift Program of 2010 (HELP Act) expanded existing U.S. trade preferences (especially duty-free treatment for certain qualifying apparel, regardless of the origin of inputs) for Haiti that were established under CBTPA and the HOPE Acts and extended them through September 30, 2020. [264] The Trade Preferences Extension Act of 2015 extended the HOPE/HELP Acts preferences through September 30, 2025. [265] To date, there have been no other changes to the HOPE/HELP Acts, and duty-free access to the U.S. market remains a major incentive for U.S. firms to import apparel from Haiti. [266]

Nearly all (97.0 percent) U.S. imports of apparel from Haiti entered duty-free under trade preference programs in 2018 (table 2.8). Existing trade preferences under the CBTPA provisions and the HOPE Acts allow Haitian producers and U.S. buyers to use both U.S. yarns and fabrics, and yarns and fabrics of any origin, to take advantage of duty-free benefits. [267] Slightly more than one-quarter (27.4 percent) of total U.S. imports of apparel from Haiti ($254.5 million) entered under CBTPA provisions in 2018. The share entering under CBTPA has been falling steadily since 2014, reflecting a continued shift of U.S. apparel imports from Haiti from entering under CBTPA provisions to entering under the HOPE/HELP Acts. [268] This decline in the utilization of CBTPA preferences may be attributed not only to the more flexible rules of origin offered under HOPE/HELP but also to CBTPA’s approaching expiration on September 30, 2020, given that the HOPE/HELP Acts do not expire until September 30, 2025. Between 2017 and 2018, the value of U.S. imports of apparel entering under the HOPE/HELP Acts rose 11.9 percent, from $577.0 million to $645.5 million. These imports represented nearly 70 percent of total U.S. apparel imports from Haiti, up from 67 percent in 2017 and 63 percent in 2016.

Table 2.8 U.S. general imports of apparel from Haiti, 2016–18

Source: USITC DataWeb/USDOC (accessed March–June 2019).

Note: These data reflect detailed U.S. general import data under trade preference programs sorted by category and published by the Office of Textiles and Apparel at the U.S. Department of Commerce (accessed March–June 2019).

Because Haiti shares a border with the Dominican Republic on the island of Hispaniola, Haiti’s apparel industry has been able to benefit from the Dominican Republic’s infrastructure, including more developed port facilities through which it can ship apparel to the United States. [269] Haiti also exclusively benefits from rules that allow and encourage co-production with the Dominican Republic. [270] This allows companies to rely on Haiti for the labor-intensive assembly operations while placing capital investments such as knitting, dyeing, or cutting machinery in the Dominican Republic, where commercial contracts are more reliable and access to adequate financing and insurance is less of a concern. [271] Several Dominican companies are major investors in industrial parks in Haiti. [272] Firms from South Korea, Sri Lanka, and Taiwan have also invested in Haiti’s apparel production and in the industrial parks that support that industry. Several Asian-based apparel manufacturers, including Hansae and S&H Global (South Korea), MAS Akansyel (Sri Lanka), and Everest (Taiwan), plan to expand their manufacturing operations in Haiti and add additional sewing jobs. [273]

Other companies have been more reluctant to make such commitments in Haiti. Several industry representatives have commented that uncertainty around the implementation of CBTPA and HOPE/HELP—namely, the programs’ relatively short-term past extensions and revolving expiration dates—has hindered long-term investments and plans for expanded sourcing in Haiti. [274]

Chapter 3 The World Trade Organization

This chapter covers developments in 2018 in the World trade Organization (WTO). These include programs and related items under the WTO General Council, as well as plurilateral agreements hosted under WTO auspices. [275] The chapter also summarizes developments in major WTO dispute settlement cases during the year.

Meetings and Agreements

Multilateral Trade Negotiations

In October 2018, the WTO Director-General Roberto Azevêdo reported to an informal meeting of the Trade Negotiations Committee and WTO heads of delegations that little progress had been made in trade negotiations since the Eleventh WTO Ministerial Conference in December 2017. He asked members to continue to work in all areas of negotiations, noting that only the members themselves could drive issues forward. [276]

Beyond multilateral trade negotiations in the WTO under the Doha Development Agenda (DDA), the WTO Director-General highlighted increased discussion in his consultations with members over the functioning of the multilateral trade system itself, where some members saw distortions in trade practices that might be checked through WTO reform or modernization efforts. He said in his address to the full WTO membership in December 2018 that members need to work to ease tensions and respond to systemic issues. [277]

General Council

At the WTO General Council session in July 2018, members agreed to hold the Twelfth WTO Ministerial Conference, June 8–11, 2020, in Astana, Kazakhstan. [278]

Work Programs, Decisions, Waivers, and Reviews

At the year-end meeting of the General Council, delegates reviewed a variety of work programs, including the work programs on electronic commerce, small economies, and Aid for Trade. They also reviewed progress on the initiative on the development assistance aspects of cotton; reviewed the report by the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) on the functioning of the compulsory licensing system for medicines; and reviewed waivers, as described below.

Work Program on Electronic Commerce

The Chair of the General Council reported on the periodic reviews held under the Work Program on Electronic Commerce during 2018. These reviews discussed, in particular, the moratorium on imposing customs duties on electronic transmissions. At the Eleventh WTO Ministerial conference held in December 2017, members agreed to extend this moratorium for two years while they worked toward possible future negotiations on electronic commerce (e-commerce). They also discussed the possible establishment of a WTO institutional structure, such as a working group, to provide a single WTO forum to help focus future e-commerce discussions. [279] Separate but parallel discussions among a subset of WTO members in 2018 addressed possible future e-commerce negotiations under the Electronic Commerce Initiative (see the “Electronic Commerce Initiative” section later in this chapter).

Work Program on Small Economies

The Committee on Trade and Development reported on meetings held during 2018 in keeping with its standing General Council mandate. These included dedicated sessions held in June and November 2018, which focused on the factors that contribute to higher trade costs faced by small and vulnerable economies. They also discussed best practices and policy approaches to mitigate the effect of each factor. [280]

Aid for Trade Initiative

The WTO-led Aid for Trade initiative seeks to mobilize resources to address the trade-related constraints identified by developing and least-developed countries. [281] The Committee on Trade and Development carries out its activities under the Aid for Trade initiative based on a two-year work program. [282] On May 7, 2018, the Committee agreed on its work program for Aid for Trade for the 2018–19 period. [283] The work program’s primary focus is the Aid for Trade Global Review in 2019––the seventh since 2007––that will review progress made in subjects such as aid-for-trade financing for trade policy and regulation, trade development, trade-related infrastructure, increasing productive trade capacity, trade-related adjustment, and other trade-related needs. [284]

Development Assistance Aspects of Cotton

On behalf of the WTO Director-General, the Deputy DG reported to the General Council on the development assistance aspects of cotton, as called for originally under the 2004 Doha Work Program [285] and reinforced subsequently by decisions taken at the ministerial conferences held in 2013 and 2015. [286] In particular, he reported on progress made under the so-called Cotton Initiative that looks to better coordinate trade negotiations affecting cotton, such as domestic support and export subsidy programs in developed countries, with the development aspects of cotton. Examples of the latter include cotton-specific assistance channeled by the international development community to the less developed cotton producers through bilateral, multilateral, and regional efforts. [287] In addition to increases in active cotton-specific development assistance in 2018, the Deputy DG reported that discussions and work taking place under the Director-General’s Consultative Framework Mechanism on Cotton have become more “methodical.” [288]

Annual Review of the TRIPS Special Compulsory Licensing System

The General Council noted in the annual report of the TRIPS Council [289] covering the Special Compulsory Licensing System, an amendment to the WTO TRIPS Agreement that entered into force on January 23, 2017. [290] The amendment grew out of a 2005 decision by WTO members to waive a particular restriction on compulsory licensing found in the TRIPS Agreement. Under TRIPS, typically a member country that produces generic medicines under compulsory licenses must sell those medicines only into its own domestic market. The amendment allows generic versions of patented medicines to be produced under compulsory licenses exclusively for export to countries that cannot manufacture the needed medicines themselves. [291] All WTO members are eligible to import medicines under this additional compulsory licensing mechanism, although industrial countries have elected not to use it for imports. [292] The waiver aims to help developing and least-developed countries import needed medicines when faced with public health problems, even if they obtain the medicines from suppliers in another country producing under compulsory licenses. [293]

Review of Waivers under Article IX:4 of the WTO Agreement

In 2018, the General Council adopted four draft decisions that introduced a number of changes, made respectively in the Harmonized System’s 2002, 2007, 2012, and 2017 versions, into the WTO Schedule of Tariff Concessions. [294] The council also conducted its annual review of waivers under Article IX:4 of the WTO Agreement, including waivers granted to the United States for the Caribbean Basin Economic Recovery Act (through December 31, 2019), African Growth and Opportunity Act (through September 30, 2025), Former U.S. Trust Territory of the Pacific Islands (through December 31, 2026), and trade preferences granted to Nepal (through December 31, 2025). [295] Under the terms of the waivers, the United States is required to submit an annual report to the General Council covering trade under these programs in the previous year. [296] These waivers allow the United States to continue to provide preferential trade access to the above partner economies.

WTO Membership

In 2018, WTO membership remained at 164. [297] In addition, the WTO counted 23 observer governments, as well as numerous observer institutions. According to the WTO Director-General, 22 of the 23 observer governments were at some stage in the process of WTO accession at yearend 2018. [298] Of these 22 governments, USTR considered 11 to be engaged [299] in the accession process during the year, while the remaining 11 either were dormant [300] or had not yet begun the process [301] during 2018. [302]

Agreement on Trade Facilitation

The WTO Agreement on Trade Facilitation (TFA) aims to expedite the movement, clearance, and release of goods, including goods in transit. It sets out measures for cooperation on trade facilitation and customs compliance issues between customs authorities and other appropriate authorities. In addition, the agreement contains provisions for technical assistance and capacity building to facilitate trade. [303] The TFA entered in force on February 22, 2017, after it was ratified by the necessary two-thirds of the WTO membership. [304] The Committee on Trade Facilitation, established as part of the agreement, held its first session May 16, 2017. The committee receives updates on ratifications and notifications under the TFA, as well as on activities of the WTO Trade Facilitation Agreement Facility. [305]

The Committee on Trade Facilitation held four sessions in 2018. Committee discussions during the year focused on notifications, administration, and implementation of the agreement. Members also exchanged experiences on how national committees address trade facilitation, transit, and other topics; possible regional approaches to trade facilitation; and subjects such as authorized economic operators, use of a single customs window, and advanced customs rulings. [306]

By November 30, 2018, 140 countries had ratified the TFA, representing over 85 percent of WTO membership. [307] Near yearend 2018, submission of category A, B, and C notifications also rose to 114, 71, and 60, respectively. [308]

Plurilateral Agreements Already in Force

Agreement on Trade in Civil Aircraft [309]

The Agreement on Trade in Civil Aircraft entered into force on January 1, 1980 as part of the Uruguay Round agreements. During the process of establishing the WTO in 1995, the Agreement on Trade in Civil Aircraft was one of two plurilateral agreements carried out that committed signatories to core disciplines applicable only to those parties signing the agreement. [310] In 2018, there were 32 signatories to the Agreement on Trade in Civil Aircraft, of which 20 European Union (EU) member states are signatory governments in their own right. The agreement eliminates import duties on all civil (i.e., nonmilitary) aircraft, as well as on other related products covered by the agreement. Examples of covered products are civil aircraft engines and their parts and components; components and sub-assemblies of civil aircraft; and flight simulators and their parts and components. [311] In 2018, the WTO Committee on Trade in Civil Aircraft held an informal meeting in March, as well as a formal meeting in October where signatory countries adopted the annual report for 2018. [312] The Committee continued to discuss whether and how to update the tariff classifications of the list of products covered by the agreement. [313]

Agreement on Government Procurement [314]

The initial Agreement on Government Procurement (GPA) was signed in 1994 as a plurilateral agreement under the WTO, administered by the WTO Committee on Government Procurement. The initial agreement had 19 parties, including the United States. [315] The agreement aims to open bidding to all suppliers from GPA parties on government procurement contracts covering goods, services, and construction services.

Once the agreement came into effect, the parties opened negotiations to improve its provisions, leading to the Revised Agreement on Government Procurement in 2012. Signed by the initial 19 parties, [316] the new agreement covered 47 WTO members overall. [317] On October 17, 2018, the parties approved the accession of Australia to the GPA. Australia would officially become a party to the GPA 30 days after submitting its formal instrument of accession to the WTO Director-General. [318] At the November 27, 2018, meeting of the committee, the parties approved in principle the final market-access offer by the United Kingdom in its own right in preparation for Brexit. The offer was intended to replicate the EU’s current GPA schedule of commitments that the UK accepts as a member state of the European Union. [319]

Expansion of the Information Technology Agreement

The Information Technology Agreement (ITA) [320] is a plurilateral agreement that eliminates tariffs on certain information and communications technology products, such as computers, telecommunication equipment, semiconductors, semiconductor manufacturing and testing equipment, software, and scientific instruments, as well as most of the parts and accessories for these products. [321] It was concluded by 29 participants at the December 1996 Singapore Ministerial Conference. [322] In 2018, no new members signed onto the ITA, which now totals 53 participants (accounting for 82 WTO members), including the United States. [323]

In June 2012, a subset of ITA participants initiated talks to expand product coverage under the ITA, given advances made in information technology products since the original ITA was signed. [324] By July 2015, following 17 rounds of negotiations, participants agreed to eliminate tariffs on an additional 201 products. [325] New products covered by the ITA expansion include new-generation semiconductors, semiconductor manufacturing equipment, optical lenses, Global Positioning System (GPS) navigation equipment, and medical equipment such as magnetic resonance imaging products and ultrasonic scanning apparatus. To date, more than 50 WTO members, accounting for about 90 percent of world trade in products covered under the expansion, have confirmed their acceptance of tariff concessions. [326]

WTO members that participated in the negotiations to expand the ITA implemented their third set of tariff reductions on July 1, 2018. [327] The Committee of Participants on the Expansion of Trade in Information Technology Products met twice in 2018. These meetings focused on two implementation issues concerning India and China. [328] In addition, under the work program on nontariff measures, an informal group of 15 members focused on conformity assessment procedures linked to test results, e-labeling, and transparency. [329]

Selected Plurilateral Agreements under Discussion

This section covers negotiations on fisheries subsidies and exploratory talks on electronic commerce, which were active during 2018. There have been no new developments in the negotiations on an environmental goods agreement since 2016. [330]

Negotiations on an Agreement on Fisheries Subsidies [331]

WTO negotiations on fisheries subsidies were initially launched in November 2001 at the Fourth WTO Ministerial Conference in Doha, Qatar, and further elaborated in December 2005 at the Sixth Ministerial Conference in Hong Kong, China. The aim of these negotiations was to improve WTO disciplines on fisheries subsidies; in 2005, it was expanded to include work toward prohibiting certain forms of fisheries subsidies that contribute to overfishing and overcapacity.

In September 2015, world leaders adopted the United Nations’ Sustainable Development Goals (SDGs), and in doing so gave renewed impetus to the WTO fisheries negotiations. In particular, SDG target 14.6 sets a target date of 2020 for eliminating subsidies that contribute to illegal, unreported, and unregulated (IUU) fishing, as well as prohibits certain forms of subsidies that contribute to overcapacity and overfishing. SDG target 14.6 also includes special and differential treatment for developing and least-developed countries as an integral part of these negotiations. [332]

Within the WTO Negotiating Group on Rules (Negotiating Group), WTO members discussed proposals and exchanged views on a possible agreement to discipline fishing subsidies in 2016 and 2017. [333] The chair circulated a document––a so-called compilation matrix [334] ––on July 28, 2017, reflecting seven proposals put forward by various negotiating groups: (1) New Zealand, Iceland, and Pakistan; (2) the EU; (3) Indonesia; (4) the African, Caribbean, Pacific (ACP) Group of States; (5) a Latin American group composed of Argentina, Colombia, Costa Rica, Panama, Peru, and Uruguay; (6) the Least-Developed Countries (LDC) Group; and (7) Norway. [335] The matrix organized the seven proposals into the following six categories: (1) general provisions; (2) prohibitions; (3) standstill; [336] (4) special and differential treatment, and technical assistance and capacity building; (5) transparency; and (6) transitional provisions and institutional arrangements/review. [337] Based on the compilation matrix, the Negotiating Group on Rules produced a working document that compiled definitions, scope, prohibited subsidies, and exceptions into a single document. [338]

In the December 2017 Ministerial Decision on fisheries subsidies, [339] members agreed to continue negotiating a fisheries agreement with a view to adoption by the Ministerial Conference in 2019. In early 2018 members discussed how to organize work on fisheries subsidies, [340] with the Negotiating Group opening consultations on March 28, 2018. [341] Members agreed on a May–July 2018 work program to include the following sets or clusters of meetings: May 14–17, to address subsidies that contribute to overcapacity and overfishing; June 11–14, to discuss fishing subsidies that affect overfished stocks; and July 23–25, to focus on subsidies that relate to IUU fishing, with all three clusters of meetings addressing aspects of special and differential treatment. [342]

The Negotiating Group developed its September–December 2018 work program to support more substantive talks aimed toward actual negotiations. [343] Under the work program, specific topics would be assigned to four so-called Incubator Groups that would meet just before the Negotiating Group’s cluster meetings so as to better inform its discussions. Eighteen topics were developed at the outset of this work program for incubator groups to address. Examples include how to identify harmful subsidy effects on fish stocks and fishing capacity; approaches to “positive” or “nonharmful” subsidies; how to define and determine IUU fishing and overfished stocks; how to distinguish between capacity and overcapacity, and fishing activity from overfishing; aspects of fisheries management, such as regional fisheries management organizations (RFMOs); the applicability of any disciplines established to at-sea activities, on-shore activities, and fishing in high seas areas not under management by an RFMO; the role of outside expertise in developing fisheries disciplines; and overall transparency provisions. [344]

Members opened their September–December 2018 work program on September 17, 2018, with Incubator Group sessions, followed by the Negotiating Group’s first cluster of meetings September 24–28. [345] The next set of meetings started October 30 with Incubator Group meetings, followed by the Negotiating Group’s second cluster of meetings November 5–9, 2018. [346] A third set took place with Incubator Group sessions starting November 27, followed by the Negotiating Group’s third cluster of meetings December 3–7, 2018. [347] During the December 3–7 meetings, the Negotiating Group on Rules agreed to intensify talks on fisheries subsidies in 2019, [348] and set its January–July 2019 work program. [349] The group was expected to move from discussions of the 2018 proposals into negotiations on a consolidated draft text by early 2019. [350]

Electronic Commerce Initiative

The Joint Statement on Electronic Commerce of December 13, 2017, released at the Eleventh WTO Ministerial conference in Buenos Aires, Argentina, set out a focus on addressing electronic commerce and digital trade. Discussions were to run in parallel with the WTO Work Program on Electronic Commerce. [351]

In the statement, like-minded WTO members committed to initiate exploratory work as a group in early 2018 aimed at preparing for future WTO negotiations on trade-related aspects of electronic commerce. The group noted that a primary goal was to take better advantage of the opportunities presented by e-commerce, while also recognizing the role played by the WTO in promoting open, transparent, nondiscriminatory, and predictable regulatory environments to facilitate e-commerce.

During 2018, these WTO Meetings for Exploratory Work on Electronic Commerce occurred nearly monthly, for a total of nine meetings for the year. In these meetings, roughly 80 WTO members exchanged ideas and proposals aimed at opening negotiations on trade-related aspects of e-commerce. Discussions focused on a set of four themes expected to provide the basis for eventual negotiations: (1) enabling digital trade/e-commerce; (2) openness and digital trade/e-commerce; (3) trust and digital trade/e-commerce; and (4) other crosscutting issues. [352]

Dispute Settlement Body

This section gives an overview of the WTO dispute settlement process, as well as information about proceedings during calendar year 2018, particularly those in which the United States was a complaining or responding party. More specifically, it provides (1) a tally of new requests for consultations filed by WTO members during calendar year 2018 under the WTO Dispute Settlement Understanding (DSU); (2) a table that lists the new dispute settlement panels established during calendar year 2018 in which the United States was either the complaining party or the named respondent; and (3) short summaries of the procedural and substantive issues in disputes involving the United States that moved to the panel stage during 2018, as well as summaries of panel and Appellate Body reports issued during 2018 in disputes that involved the United States. At the end of this section, U.S. concerns with the WTO dispute settlement process are described.

Figure 3.1 provides a timeline for the WTO dispute settlement process prepared by the WTO. The references in the timeline are to articles in the WTO Dispute Settlement Understanding.

Source: WTO, “ The Process—Stages in a Typical WTO Dispute Settlement Case ” (accessed June 7, 2018).

This section’s summaries of issues and of findings and recommendations in panel and Appellate Body reports are based entirely on information in publicly available documents. Sources include summaries published online by the WTO, summaries included in USTR’s 2019 Trade Policy Agenda and 2018 Annual Report , and summaries included in USTR press releases. The summaries in this report should not be regarded as comprehensive or as reflecting a U.S. government or Commission interpretation of the issues raised or addressed in the disputes or in panel or Appellate Body reports. A table showing procedural developments during 2018 in disputes in which the United States was the complainant or respondent appears in appendix table A.25.

This section focuses on developments during 2018, including panel and Appellate Body reports issued during 2018 and adopted by the Dispute Settlement Body (DSB). With minor exceptions, panel and Appellate Body reports and DSB actions after the close of 2018 will be summarized in the Commission’s report covering 2019. [353] A number of disputes filed before 2018 remained inactive throughout 2018, either at the consultation stage or with a panel established but not composed. With minor exceptions, this report will not discuss those disputes. [354]

Finally, this section focuses only on developments through the panel and Appellate Body stage and does not include matters that arose after the DSB adopted panel or Appellate Body reports in the original dispute. As indicated in the flowchart in figure 3.1, dispute litigation often continues beyond the adoption of the panel or Appellate Body report, particularly when the defending party is the “losing” party. Issues may arise about the reasonableness of the time sought by the losing party to implement findings and recommendations, the adequacy of actions taken by that party to comply with the findings and recommendations, and possible compensation and retaliation. Matters may be referred to the original panel or to a new panel for further findings and recommendations on compliance and other matters, and when appropriate, the parties may seek the help of an arbitrator to resolve matters.

Appendix table A.25 sets out the timeline for procedural actions in specific active WTO dispute settlement cases, including procedural actions at the implementation, compliance, and compensation/retaliation stages. A number of disputes were still active or were finally resolved during 2018, well after the DSB adopted the panel and/or Appellate Body report in the original dispute. One example is a dispute brought by the United States in 2004 against the EU on measures affecting trade in large civil aircraft. The Appellate Body issued a report on this dispute on May 15, 2018, in ongoing compliance proceedings, confirming that the EU and certain EU member states had failed to comply with the earlier WTO determination that found “launch aid”—subsidies from several EU countries to Airbus—to be inconsistent with their WTO obligations. On July 13, 2018, at the request of the United States, arbitration proceedings about the level of countermeasures (suspended in January 2012) to be applied were resumed, with a decision expected in 2019. [355] In another dispute dating back to 2008, the Appellate Body issued a report in December 2018 on compliance proceedings, bringing to a close a dispute about the U.S. dolphin-safe labeling measure affecting the importation, marketing, and sale of tuna and tuna products. [356]

New Requests for Consultations

During 2018, WTO members filed 39 new requests for dispute settlement consultations. This number was significantly higher than the average for the five preceding years and more than double the 17 filed in 2017. Requests filed by three members—the United States (8 requests), China (5), and South Korea (3)—accounted for slightly over 40 percent of the requests filed during 2018. The United States was the named respondent in nearly half the disputes filed during 2018 (in 19 of 39 complaints). China was a distant second, as the named respondent in four disputes. Nearly half the complaints (9) filed against the United States concerned U.S. national security tariffs on steel and aluminum products, and two-thirds of the complaints filed by the United States concerned measures taken by other WTO members in response to the U.S. steel and aluminum tariffs. The issues presented in these disputes are described below. The 39 new requests included 25 different named WTO members, either as a complainant or named respondent or in both capacities. [357]

As of the end of 2018, seven of the eight disputes filed by the United States during 2018 were at the panel stage, with the panel composed in one of those disputes. The eighth was still at the consultation stage. [358] As of the end of 2018, 14 of the 19 disputes filed against the United States during 2018 had advanced to the panel stage, including two in which a panel had also been composed. The remaining five disputes were still in the consultation phase. Four of the disputes, two filed by the United States against Canada and Mexico, respectively, and one each filed by Canada and Mexico against the United States, were terminated in May 2019 after the parties reached a mutually agreed solution.

Disputes Filed by the United States

In DS541, filed in March 14, 2018, the United States requested consultations with India concerning certain alleged export subsidy measures. The United States claimed that the measures appear to be inconsistent with Articles 3.1(a) and 3.2 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). When consultations failed to resolve the dispute, the United States requested the DSB to establish a panel. The DSB established a panel on March 14, 2018, and the Director-General composed the panel on July 23, 2018. On December 3, 2018, the chair of the panel informed the DSB that the panel’s work had been delayed due to lack of available resources in the Secretariat, and that the panel did not expect to issue its final report to the parties before the second quarter of 2019. [359] In the dispute the United States challenged several Indian export subsidy programs: (1) the Export Oriented Units Scheme and sector-specific schemes, including Electronics Hardware Technology Parks Scheme; (2) the Merchandise Exports from India Scheme; (3) the Export Promotion Capital Goods Scheme; (4) Special Economic Zones; and (5) a duty-free imports for exporters program. [360]

The U.S. Trade Representative filed dispute DS542 after having determined, under section 301(b) of the Trade Act of 1974, that certain acts, policies, and practices by China in the form of certain specific aspects of China’s technology regulations are unreasonable or discriminatory and burden or restrict U.S. commerce. [361] The United States requested consultations with China on March 23, 2018, concerning certain measures pertaining to the protection of intellectual property rights. The United States claimed that China’s measures appear to be inconsistent with Articles 3, 28.1(a) and (b), and 28.2 of the TRIPS Agreement. After consultations failed to resolve the matter, the United States asked the DSB to establish a panel, and the DSB did so on November 21, 2018. The Director-General composed the panel on January 16, 2019. [362] In a press release issued at the time the United States filed the dispute, the Trade Representative stated that China appears to be breaking WTO rules “by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends” and “by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology.” [363]

The United States filed the remaining six disputes—DS557, DS558, DS559, DS560, DS561, and DS566—in response to measures imposed by Canada, China, the EU, Mexico, Turkey, and the Russian Federation, respectively, challenging the tariffs each WTO member imposed in response to U.S. actions on trade in aluminum and steel. [364] The United States claimed that the measures appear to be inconsistent with Articles I:1, II:1(a) and II:1(b) of the General Agreement on Tariffs and Trade (GATT) 1994. After consultations failed to resolve the disputes, the United States requested the establishment of a panel in each dispute, and the DSB established panels in DS557, DS558, DS559, and DS560 on November 21, 2018; a panel in DS566 on December 18, 2018; and a panel in DS561 on January 28, 2019. [365] The United States stated that it had imposed the tariffs under section 232 of the Trade Expansion Act of 1962 to protect U.S. national security interests. [366] By agreement of the parties, two of these disputes, DS557 and DS560, were terminated in May 2019 after the United States reached mutually agreed solutions with Canada and Mexico, respectively. [367]

Disputes in Which the United States Was the Named Respondent

Nine of the 19 disputes filed against the United States concerned U.S. measures imposed by the President on certain steel and aluminum products under his section 232 national security authority. [368] The complaining parties in the nine disputes claimed (with some differences between them) that the U.S. measures appeared to be inconsistent with certain provisions of the Agreement on Safeguards and with Articles I, II, X, XI, and XIX of GATT 1994. After consultations failed to resolve the disputes, the complaining WTO members requested the establishment of separate panels to address their individual disputes. The DSB established individual panels in DS544, DS548, DS550, DS551, DS552, DS554, and DS564 on November 21, 2018, and established a panel in DS547 (India) and in DS556 (Switzerland) on December 4, 2018. [369] As indicated above, two of those disputes, brought by Canada and Mexico, respectively, were terminated in May 2019 as part of the mutually agreed solution reached by the United States, Canada, and Mexico. [370]

Three of the disputes, one by China and two by South Korea, challenged U.S. safeguard measures imposed by the President in February 2018 on imports of crystalline silicon photovoltaic products and large residential washers. Each of those disputes claimed that the U.S. measures are inconsistent with certain U.S. obligations under the Safeguard Agreement and Article XIX of GATT 1994. [371]

The remaining seven requests for consultations were filed by Vietnam, South Korea, China, and Venezuela. Two of the requests related to U.S. countervailing duty and antidumping measures. First, in DS536, Vietnam requested consultations with the United States concerning certain antidumping measures on fish fillets from Vietnam and other U.S. legal instruments. Vietnam claimed that the measures appear to be inconsistent with certain provisions in Articles 1, 2, 6, 9, 11, and 17 and Annex II of the Antidumping Agreement; with Articles I, VI, and X of GATT 1994; with Articles 3, 19, and 21 of DSU; with Article XVI:4 of the WTO Agreement; and with Vietnam’s Protocol of Accession. After consultations failed to resolve the dispute, Vietnam requested establishment of a panel. The DSB established a panel on July 20, 2018, and the Director-General composed the panel on November 30, 2018. [372]

In DS539, South Korea requested consultations with the United States about certain antidumping and countervailing duty measures imposed on products from South Korea, and certain laws, regulations, and other measures maintained by the United States with respect to the use of facts available in antidumping and countervailing duty proceedings. South Korea claimed that the measures appear to be inconsistent with certain provisions in Articles 1, 2, 3, 5, 6, 9, 11, and 18 and in Annexes I and II of the Antidumping Agreement; with Articles 1, 10, 11, 12, 14, 15 19, 21, and 32 and Annex VI of the SCM Agreement; with Article VI of GATT 1994; and with Article XVI:4 of the Marrakesh Agreement. After consultations failed to resolve the dispute, South Korea requested establishment of a panel. The DSB established a panel on May 28, 2018. Following agreement of the parties, the panel was composed on December 5, 2018. [373]

The five remaining disputes concerned several different matters. In DS540, Vietnam requested consultations concerning certain U.S. measures affecting the importation into the United States of pangasius [374] seafood products from Vietnam, purportedly because of sanitary and phytosanitary concerns. Vietnam claimed that the measures appear to be inconsistent with Articles I:1 and XI:1 of GATT 1994. As of the end of 2018, the dispute was still in consultations. [375] In DS543, filed by China, China claimed that certain tariff measures to be imposed on Chinese goods and implemented through sections 301–310 of the U.S. Trade Act of 1974 appear to be inconsistent with Articles 1:1 and II:1(a) and (b) of GATT 1994 and Article 23 of the DSU. After consultations failed to resolve the dispute, China requested the establishment of a panel. [376]

In DS563, China requested consultations with the United States concerning certain measures allegedly adopted and maintained by the governments of certain U.S. states and municipalities relating to alleged subsidies or domestic content requirements in the energy sector. China claimed the measures appear to be inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement, Articles 2.1 and 2.2 of the Agreement on Trade-Related Investment Measures (TRIMS Agreement), and Article III:4 of GATT 1994. The dispute was still in consultations at the end of 2018. [377] Dispute DS565, also filed by China, concerned U.S. tariff measures on certain goods from China imposed in response to USTR’s section 301 investigation. China claimed that the measures appear to be inconsistent with certain provisions in Articles I and II of GATT 1994 and Article 23 of DSU. The dispute was still in consultations at the end of 2018. [378]

Finally, DS574, which was filed by Venezuela, concerned measures imposed by the United States related to goods of Venezuelan origin, imports of gold from Venezuela, the liquidity of Venezuela’s public debt, transactions in Venezuelan digital currency, and the supply and consumption of services by certain Venezuelan nationals, specifically those on a blocked persons list. Venezuela claimed that the measures appear to be inconsistent with certain provisions of Articles I, II, III, V, X, XI, XIII, and XXIII of GATT 1994 and certain articles of the General Agreement on Trade in Services (GATS). The dispute was in consultations at the end of 2018. [379]

New Panels Established in 2018 That Involve the United States

As indicated in table 3.1, 23 dispute settlement panels were established during 2018 in which the United States was either the requesting party (complainant) or the respondent party. The United States was the complaining party in 8 of the disputes, and the responding party in 15 disputes. All but 3 of the listed disputes (DS531, [380] DS533, [381] and DS534 [382] ) were filed during 2018.

Table 3.1 WTO dispute settlement panels established during 2018 in which the United States was a party

Source: WTO, “ Chronological List of Dispute Cases ” (accessed July 2, 2019).

a Dispute terminated in May 2019 after Canada, Mexico, and the United States reached a mutually agreeable solution in the four respective disputes.

Panel and Appellate Body Reports Issued and/or Adopted during 2018 That Involve the United States

During 2018, a WTO dispute settlement panel issued a report in two disputes to which the United States was a party. The United States was the named respondent in both disputes (table 3.2). This section covers only panel and Appellate Body reports relating to the original disputes and does not include subsequent reports, such as those of a compliance panel or an arbitrator. Many of the latter reports are noted in table A.25, which contains a procedural summary of most of the dispute settlement cases that are still active in some respect.

Table 3.2 WTO dispute settlement panel and Appellate Body (AB) reports circulated and/or adopted in 2017 in which the United States was a party

Source: WTO, “ Chronological List of Dispute Cases ” (accessed July 2, 2019).

Reports in Which the United States Was the Respondent

United States — Countervailing Measures on Supercalendered Paper from Canada (DS505)

On March 30, 2016, Canada requested consultations with the United States to consider claims related to U.S. countervailing duties on supercalendered paper from Canada (USDOC Investigation C-122-854). Canada alleged that the U.S. measures at issue were inconsistent with obligations under Articles 1.1(a)(1), 1.1(b), 2, 10, 11.1, 11.2, 11.3, 11.6, 12.1, 12.2, 12.3, 12.7, 12.8, 14, 14(d), 19.1, 19.3, 19.4, 22.3, 22.5, and 32.1 of the SCM Agreement and under Article VI:3 of GATT 1994. After consultations failed to resolve the dispute, Canada requested establishment of a panel, and the DSB established a panel on July 21, 2016. On August 31, 2016, the Director-General composed the panel. [383]

After the panel met in March and June 2017, it circulated its report on July 5, 2018. The panel report, among other things, upheld Canada’s claims with respect to the treatment by the U.S. Department of Commerce (USDOC) of subsidies that exporters refused to disclose in response to USDOC questionnaires, but which USDOC subsequently discovered during the course of the countervailing duty investigation. [384] USDOC terminated the countervailing duties on July 5, 2018. [385]

On August 27, 2018, the United States appealed the panel’s findings related to the treatment of undisclosed subsidies discovered during the course of a countervailing duty investigation. As of the end of 2018, the appellate proceedings were ongoing.

United States — Countervailing Measures on Certain Pipe and Tube Products (Turkey) (DS523)

On March 8, 2017, Turkey requested consultations with the United States concerning countervailing duty measures imposed by the United States under four final countervailing duty determinations issued by USDOC pertaining to certain pipe and tube products. Turkey challenged the application of the measures in the four determinations with respect to the provision of hot-rolled steel for less than adequate remuneration. Specifically, Turkey challenged USDOC’s “public bodies” determination, use of facts available, and determination of specificity of the subsidy program. Turkey also challenged USDOC’s calculation of benchmarks, both as applied and “as such.” With respect to injury, Turkey challenged the USITC’s “practice” of cross-cumulating imports, as well as the application of that practice in the underlying determinations. [386] Turkey claimed that the measures appear to be inconsistent with Article 1.1(a)(1), 1.1(b), 2.1(c), 2.4, 10, 12.7, 14(d), 15.3, 19.4, and 32.1 of the SCM Agreement and with Article VI:3 of GATT 1994. After consultations failed to resolve the dispute, Turkey requested establishment of a panel, and the DSB established a panel on June 19, 2017. On September 14, 2017, the Director-General composed the panel. [387]

The panel circulated its report on December 18, 2018. With respect to its public body determination, the panel found that USDOC acted inconsistently with Article 1.1(a)(1) by failing to apply the standard set out previously by the Appellate Body, and failing to establish, based on record evidence, that the relevant entities were public bodies. With respect to benchmarks as such, the panel rejected Turkey’s claim that USDOC has a practice of rejecting in-country benchmarks solely based on majority or substantial government ownership or control of the market. For benchmarks as applied, the panel declined to make a finding under Article 14(d) of the SCM Agreement because the relevant determination had ceased to have legal effect before the panel’s establishment. With respect to specificity, the panel found that USDOC acted inconsistently with Articles 2.1(c) and 2.4 of the SCM Agreement by failing to identify and clearly substantiate the existence of a subsidy program, and failing to take into account the extent of diversification of Turkey’s economy and the length of time in which the program had been in place. With respect to facts available, the panel found that USDOC acted inconsistently with respect to Article 12.7 of the SCM Agreement by failing to do a comparative process of reasoning and evaluation before selecting from the facts available in certain circumstances.

In addition, with respect to injury, the panel found that Article 15.3 of the SCM Agreement does not permit the USITC to assess cumulatively the effects of imports not subject to countervailing duty investigations with the effects of imports subject to countervailing duty investigations. The panel thus found cross-cumulation by the USITC, both in the original investigations at issue and as a practice, to be inconsistent with Article 15.3. With respect to cross-cumulation in sunset reviews, the panel found that USITC did not act inconsistently with Article 15.3 of the SCM Agreement, either “as such” or in connection with the sunset review at issue. [388]

On January 25, 2019, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretations in the panel report. On January 30, 2019, Turkey notified the DSB of its decision to cross-appeal. [389] On March 25, 2019, the Appellate Body notified the DSB that it would not be able to circulate its report in a timely way in accordance with Article 17.5 of the DSU. [390]

U.S. Concerns with WTO Dispute Settlement

The President’s 2018 Trade Policy Agenda and 2018 Annual Report issued in March 2018 set out a number of concerns about how the WTO dispute settlement system functions, including the concern that a number of WTO dispute settlement reports have not followed WTO rules. The report stated that the most significant area of concern has been panels and the Appellate Body adding to or diminishing rights and obligations under the WTO Agreement by not applying the WTO Agreement as written, and cited a number of examples. The report also cited additional concerns about (1) the Appellate Body’s decision to ignore the mandatory 90-day deadline for deciding appeals; (2) service on the Appellate Body by persons who are no longer Appellate Body members; (3) the tendency of WTO reports to make findings unnecessary to resolve a dispute or on issues not presented in a dispute; (4) the Appellate Body’s approach to reviewing facts, and about de novo review of a WTO member’s domestic law; and (5) claims by the Appellate Body that its reports are entitled to be treated as precedent. [391]

The President’s 2019 Trade Policy Agenda and 2018 Annual Report, issued in March 2019, restated these concerns and noted that many WTO members share these concerns. The President’s 2019 report stated that, as a result, “the United States was not prepared to agree to launch the process to fill vacancies on the WTO Appellate Body without WTO Members engaging with and addressing these critical issues.” [392]

Chapter 4 Selected Regional and Bilateral Trade Activities

This chapter summarizes trade-related activities during 2018 in two major multilateral organizations—the Organisation for Economic Co-operation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) forum. It also covers the activities conducted under U.S. trade and investment framework agreements (TIFAs).

Organisation for Economic Co-operation and Development (OECD)

The OECD’s membership is comprised of the world’s leading market-based economies. It provides a policy forum for member governments to review, discuss, and find evidence-based solutions to economic, social, and environmental challenges facing the global economy, including trade, taxation, and macroeconomic performance and job creation. [393] After the accession of Lithuania and Colombia on May 30, there were 37 OECD members in 2018. [394]

Ministerial Council Meeting

The OECD held its Ministerial Council Meeting on May 30–31, 2018, in Paris, France. Ministers focused on ways to harness international cooperation and better economic policies to promote human progress for better lives. [395] They also discussed a number of other topics connected with the world economy, including:

• Inequalities in economic growth between countries, as well as how to foster more inclusive growth within countries. [396]

• The challenges of the digital economy. [397]

• How to combat illicit money flows and corruption.

• How to achieve fairer international taxation.

• How to promote strong and inclusive economic growth through international trade and investment.

• Issues concerning climate and the environment.

• Efforts to achieve more sustainable development goals to promote economic development in other countries.

• How to create more effective and responsive multilateralism in international trade engagement by promoting collaboration with key partners, regional and country programs, and local authorities. [398]

Trade Committee

In 2018, the OECD Trade Committee met in March (172nd session), April (173rd session), and October (174th session). [399] One focus was on preparations for upcoming activities in multilateral bodies, such as the May 2018 OECD Ministerial Council Meeting, [400] the June 2018 Group of 7 Summit, [401] and the November–December 2018 Group of 20 (G20) Leaders’ Summit. [402] In addition, the Trade Committee spent time finalizing Colombia’s bid to become an OECD member, as announced May 30, 2018. Besides the three plenary sessions, the Trade Committee held confidential sessions in 2018 on March 23, April 25, and October 23. [403]

Working Party of the Trade Committee

The Working Party of the Trade Committee held four meetings in 2018: March 15–16, June 18–19, October 17–18, and December 11–12. [404] During the year, the Working Party addressed multiple topics, notably trade in services, digital trade, trade in raw materials, and trade and investment. For example, for the first two categories—services and digital trade—Working Party projects included:

• Mapping digital trade restrictions and determining market openness in digital trade by developing a new online tool—the Digital Services Trade Restrictiveness Index (Digital STRI)—which focuses on crosscutting impediments that hinder services traded digitally. [405]

• Promoting digital trade among members of the Association of Southeast Asian Nations (ASEAN). [406]

• Looking at how to design service-sector reforms that would produce gains and benefits that are widely shared across the economy, by examining how the increased use, production, and sales of services by manufacturing firms (called “servicification”) would affect labor market dynamics. [407]

• Developing further insights on services exported together with goods to help with the accurate collection of statistics, to assess the relative importance of manufacturing and services activities, and to discuss the policy implications of servicification. [408]

Other Working Party projects discussed included one addressing aspects of trade and investment—such as measuring the effects of regional trade agreements—and another analyzing the economic impact on particular OECD countries of the United Kingdom’s withdrawal from the European Union (“Brexit”). [409]

Global Forum on Steel Excess Capacity

The Global Forum on Steel Excess Capacity (GFSEC) was created following calls from leaders of the G20 to address structural problems such as global excess capacity in the steel and other industries. [410] On December 16, 2016, GFSEC was formally established in Berlin, Germany, [411] to (1) exchange information and data on global steel capacity developments and government policies affecting excess steel capacity; (2) develop policy solutions and recommendations to alleviate excess capacity in the steel industry; and (3) report on its work to the G20 ministers. [412] The OECD both chairs the forum and facilitates the work produced by the GFSEC steering group. [413] In 2018, 33 economies participated in the forum, including several non-OECD steel-producing economies. [414] The lifespan of the GFSEC was initially set at three years, but could be extended based on the consensus of members.

In 2017, GFSEC member economies approved the so-called Berlin Ministerial report, which contained six guiding principles. These principles are as follows:

1. Understanding that steel excess capacity is a global challenge, requiring collective policy solutions.

2. Refraining from market-distorting subsidies and government support measures.

3. Fostering a level playing field in the steel industry.

4. Ensuring market-based outcomes in the steel industry.

5. Encouraging adjustment and thereby reducing excess capacity.

6. Ensuring greater transparency as well as review, discussion, and assessment of the implementation of the Global Forum policy solutions.

GFSEC member economies also drafted policy recommendations for governments to use. For example, to address the goals of the fifth principle, the economies recommended reducing excess capacity in the steel sector, while governments can address the sixth principle by formulating recommendations to continually update members‘ information on steel capacity and policy measures. [415]

The forum met several times in 2018, including at the second ministerial-level GFSEC meeting, which was held in Paris, France, on September 20, 2018. At the ministerial, the forum agreed on a report, which was presented at the G20 leaders’ summit November 30–December 1, 2018. [416] The report included initial conclusions on a process to identify and remove subsidies and other government support measures for both public and private steel producers that could contribute or may have contributed to excess capacity in the steel sector. [417]

Asia-Pacific Economic Cooperation (APEC)

Background

Established in 1989 and composed of 21 member economies, [418] Asia-Pacific Economic Cooperation (APEC) is a regional economic and trade forum. Since its inception, APEC has aimed to increase prosperity in the region by supporting regional economic integration; promoting balanced, innovative, inclusive, and sustainable growth; and facilitating easy movement of goods, services, investment, and people across borders. APEC organizes events, including economic leaders’ summits, ministerial meetings, senior officials’ meetings, policy dialogues, and workshops, to discuss various trade and economic issues. APEC decisions are made by consensus, and commitments are undertaken voluntarily. [419] Every year, one of the 21 APEC member economies plays the host to APEC meetings and serves as the APEC chair. [420] In 2018, Papua New Guinea served as the APEC chair and hosted major APEC meetings for the first time since Papua New Guinea joined APEC in 1993.

APEC’s operational structure is based on both “bottom-up” and “top-down” approaches. Four core committees, including the Committee on Trade and Investment (CTI), provide strategic policy recommendations to APEC economic leaders and ministers who meet annually to set the vision for overarching goals and initiatives. The working groups under each committee are tasked with implementing these initiatives through a variety of APEC-funded projects. Member economies also take individual and collective actions to carry out APEC initiatives. Capacity building is a key element of APEC’s operation, playing an important role in helping realize APEC’s goals by providing skill training and technological expertise to member economies. [421]

2018 APEC Developments

For the Papua New Guinea meeting, APEC adopted the theme of “Harnessing Inclusive Opportunities, Embracing the Digital Future.” The theme was intended to recognize the importance of facilitating e-commerce and digital trade while emphasizing the productivity and economic gains possible through APEC collective efforts on developing the digital economy. APEC members pledged to promote an inclusive participation of all groups in the digital economy through capacity building, skills development, and facilitation of access to secure digital infrastructure. [422]

In its 2018 annual report to ministers, CTI noted that APEC work for the year focused on supporting and improving the multilateral trading system, reducing trade and investment barriers, improving procedures at the border and along supply chains, and harmonizing standards and regulations to reduce trade costs. Three of the accomplishments highlighted for the year show progress made in these areas: [423]

• Advancing global value chain (GVC) development and cooperation in the APEC region under Work Stream 2: APEC GVCs and Trade in Value Added (TiVA) Measurement . In 2018, under the leadership of China and the United States, the APEC TiVA Technical Group completed the majority of the technical work required for constructing the APEC TiVA Database. The resulting APEC TiVA deliverables will “serve as an important tool to help better understand the impact of global production networks on APEC economies, and to help APEC economies to develop effective economic policies that would improve the opportunities for business to participate in the global economy.” [424]

• Advancing services trade in the APEC region. APEC set up nonbinding principles for domestic regulations of services sectors; made progress toward developing an APEC index to measure services trade restrictiveness; completed the interim reviews of the Environmental Services Action Plan and the Manufacturing-Related Services Action Plan ; and organized two workshops, a symposium, and a seminar on topics related to services trade, such as professional services and e-commerce in services.

• Promoting the participation of micro, small, and medium-sized enterprises (MSMEs) in the global economy. Efforts included several studies on MSMEs’ integration into GVCs in services industries such as fashion design, tourism, and software services industries; two capacity-building workshops on promoting MSMEs’ services trade and developing MSMEs’ negotiating skills; and projects facilitating MSMEs’ effective use of intellectual property rights, such as strategies for managing and commercializing intellectual property, and best practices in intellectual property licensing and in the management of technology patents.

In addition, the CTI report noted progress made in improving trade facilitation and regulatory cooperation, among others.

Digital Trade, Internet Economy, and E-Commerce [425]

As noted earlier, the theme selected by Papua New Guinea for its year as host was “Harnessing Inclusive Opportunities, Embracing the Digital Future.” Under this theme, APEC actively worked on and discussed a number of issues related to e-commerce and digital trade in 2018:

• Implementing the Work Plan to Identify Building Blocks to Facilitate Digital Trade for 2018 . [426] The work plan sought to gather more information on domestic policies, measures, and international efforts, as well as best practices that facilitate digital trade. It also sought to identify capacity-building needs for developing economies to improve cross-border regulatory cooperation.

• Holding two policy dialogues on digital trade. Topics discussed at these policy dialogues included the evolution of emerging technologies and their impact on trade and business models; policies on data privacy and data flows; and opportunities and challenges to business and MSMEs presented by digital trade.

• Organizing a public-private dialogue on existing and emerging issues related to e-commerce and the digital economy, including the development of digital content, the diffusion of new technologies, and consumer protection.

• Conducting a study on enabling the policy and regulatory environment within APEC for data-utilizing businesses. Through case studies and interviews with firms, the study sought to deepen understanding of leading data-utilizing business models, ways of protecting privacy and data security, and the policy environment that creates opportunities and enables success for data-utilizing businesses.

• Delivering several projects on economic issues related to e-commerce and digital trade, including a workshop on enhancing regulatory infrastructure for e-commerce and a study on e-trade measures under the framework of regional trade agreements (RTAs) and free trade agreements (FTAs) in the APEC region. [427]

APEC also made significant progress in creating a policy and regulatory environment to ensure privacy protection in the APEC region. In 2018, Singapore became the sixth APEC economy, alongside the United States, Mexico, Canada, Japan, and South Korea, to participate in the Cross-border Privacy Rules System, a regional cross-border data transfer mechanism and privacy code of conduct developed by APEC for business. Also in 2018, Singapore and the United States became the first two APEC economies to participate in the APEC Privacy Recognition for Processors system, a “corollary certification system for personal information processors” designed to help personal information processors comply with the APEC Privacy Framework 2004. [428] APEC continued to implement the APEC Cross-border Privacy Enforcement Arrangement (CPEA), the first multilateral arrangement in the APEC region enabling privacy enforcement agents to share information and otherwise assist in cross-border data privacy enforcement. In 2018, the Philippines and Taiwan joined nine other APEC economies as the latest members to participate in the CPEA.

The Bogor Goals [429]

In November 2018, APEC published the APEC’s Bogor Goals Progress Report , assessing the steps its 21 member economies have made toward achieving APEC’s Bogor Goals in recent years. [430] These goals, adopted in 1994, aim to create a free and open trade and investment area in the Asia-Pacific region by reducing tariff and nontariff barriers to trade and investment, facilitating business, and fostering economic and technical cooperation. The report highlighted major achievements as well as areas for improvement:

• Tariffs : APEC has made substantial progress in tariff liberalization since its inception, but progress has been limited in recent years. Between 2014 and 2017, [431] the average most-favored-nation (MFN) tariff rate in the APEC region decreased only from 5.6 percent to 5.3 percent. The average MFN tariff rate of agricultural products was 11.4 percent, more than twice the average for nonagricultural products (4.4 percent).

• Nontariff measures (NTMs) : For some time, APEC economies have been implementing trade-facilitating NTMs, such as expedited customs procedures, the elimination of import licensing requirements, and the application of export rebates. Recently, however, the adoption of new trade-facilitating NTMs has slowed down within the APEC region. On the other hand, the number of trade-restrictive NTM measures imposed by APEC members has also fallen in recent years. At the same time, the number of trade remedies imposed by APEC economies— particularly antidumping measures—increased significantly during July 2016–June 2017 versus similar periods in previous years.

• Services : The success of APEC economies’ policies in terms of facilitating foreign participation in domestic services sectors has been mixed. Some services sectors have become increasingly liberalized, such as banking, transportation, healthcare, tertiary education, and legal services. Others, such as insurance, communications services, and electronic payment processing services, have become more restrictive.

• Investment : APEC economies have been carrying out a broad range of measures to upgrade the investment environment. These range from measures that streamline the preliminary steps of investing—easing the entry of foreign investment, relaxing the conditions for foreign ownership, raising the thresholds for screening potential investments, and simplifying approval procedures—to measures that reduce restrictions on repatriating capital, profits, or royalties. Many APEC economies also reported adopting bilateral investment agreements or regional trade agreements/free trade agreements that included investment chapters. These developments, too, would liberalize investment, simplify administrative procedures, and provide legal stability. Nonetheless, investment barriers persist in certain sectors, with policies either prohibiting foreign investment or accepting foreign investment only under certain conditions.

The report also noted improvements in areas such as customs procedures, intellectual property rights protections, competition policies, government procurement, regulatory reforms, and dispute mediation, among others. [432]

Trade and Investment Framework Agreements

Trade and Investment Framework Agreements (TIFAs) provide principles for dialogue on trade and investment issues. By yearend 2018, the United States had entered into 56 TIFAs (table 4.1), with no new TIFAs in 2018. TIFAs cover diverse matters, including market access, labor, environment, and intellectual property rights. [433] TIFA meetings serve as a setting for the United States and other parties to the TIFA to discuss issues of mutual interest with the objective of strengthening trade and investment ties. [434]

The most recent TIFA negotiations were with Paraguay. Though the U.S.-Paraguay TIFA was signed in 2017, it has not yet entered into force. As a result, discussions on trade and investment issues between the United States and Paraguay are channeled through the United States-Paraguay Bilateral Council on Trade and Investment. [435]

Table 4.1 U.S. trade and investment framework agreements (TIFAs) in 2018

Source: USTR, “Trade and Investment Framework Agreements” (accessed May 15, 2019); USTR, “ United States, Bangladesh Sign Trade and Investment Cooperation ,” November 25, 2013; USTR , 2019 Trade Policy Agenda and 2018 Annual Report , March 2019, 352–59; USTR, “ SACU ” (accessed May 15, 2019).

Note: TICF stands for Trade and Investment Cooperation Forum, TICA stands for Trade and Investment Cooperation Agreement, and TICFA stands for Trade and Investment Cooperation Forum Agreement. All are considered TIFAs by USTR. For more information, see USTR, “ Trade and Investment Framework Agreements ” (accessed May 15, 2019).

a The United States-South Africa TIFA was amended on June 18, 2012. It replaces the original TIFA, signed on February 18, 1999.

b On October 2, 2008, the United States and Uruguay signed a TIFA protocol on trade and environment and a TIFA protocol on trade facilitation.

c The 10 countries of ASEAN are Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

d The 15 members of CARICOM are Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago. It also has five associate members: Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, and the Turks and Caicos Islands.

e The six parties to the U.S.-Central Asian TIFA are the United States, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.

f The 21 members of COMESA are Burundi, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Eswatini (formerly Swaziland), Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Somalia, Tunisia, Uganda, Zambia, and Zimbabwe.

g The six parties to the U.S.-East African Community TIFA are the United States, Burundi, Kenya, Rwanda, Tanzania, and Uganda.

h The 15 members of ECOWAS are Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

i The six parties to the U.S.-Gulf Cooperation Council (GCC) Framework Agreement for Trade, Economic, Investment, and Technical Cooperation are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

j The five members of SACU are Botswana, Eswatini (formerly Swaziland), Lesotho, Namibia, and South Africa.

k The eight members of WAEMU are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

Developments in TIFAs during 2018

During 2018, 11 TIFA councils met, with results as discussed in this section.

Algeria

On October 2, 2018, the United States and Algeria held their sixth TIFA Council meeting in Washington, DC. They discussed trade and investment issues in various sectors—tourism, energy, health, handcrafts, and agriculture. The countries also discussed issues related to the digital economy, intellectual property rights, and modernization of the Algerian banking sector. [436]

Argentina

Under their TIFA, the United States and Argentina met in Washington, DC, on October 19, 2018. During the meeting, the countries discussed various issues, including agricultural market access, the need to reduce steel excess capacity, intellectual property rights protection, and continued cooperation on the World Trade Organization (WTO) initiative on electronic commerce. [437]

Armenia

On March 19, 2018, the United States and Armenia met in Washington, DC, for their second TIFA council meeting. Senior government officials discussed a range of topics, including procedures for implementing technical standards, conformity assessment, and stakeholder consultation, as well as sanitary and phytosanitary measures, customs clearance, intellectual property rights, and processes for monitoring and enforcing labor laws. In addition, the meeting included a roundtable discussion with private sector members. [438]

Bangladesh

Under their Trade and Investment Cooperation Forum Agreement, the United States and Bangladesh met in Washington, DC, on September 13, 2018, to discuss expansion of their bilateral trade and investment relationship. Topics of discussion included market access for U.S. cotton, the digital economy, labor reforms, and transparency in government procurement.

During the 2018 meeting, the United States articulated uneasiness on the country’s labor conditions. In 2013, Bangladesh was suspended from the Generalized System of Preferences (GSP) program owing to issues with workers’ rights and safety. [439] Although USTR recognized some progress on these issues during Bangladesh’s GSP review in 2015, Bangladesh’s GSP eligibility has not been reinstated, given that further progress is needed in these areas. [440]

Central Asia

On October 16, 2018, the United States, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan met in Tashkent, Uzbekistan, for the U.S.-Central Asia TIFA Council meeting. The Afghan and Pakistani governments joined the meeting as observers. [441] Two previously launched working groups, on intellectual property and women’s economic empowerment, held their first meetings in 2018. Countries discussed trade and investment issues including regional connectivity, economic cooperation, customs issues, sanitary and phytosanitary measures, standards and technical barriers to trade, and workers’ rights. [442]

Indonesia

The United States and Indonesia met under their TIFA in Jakarta, Indonesia, on May 14, 2018. The countries met with the goal of building a stronger trade relationship and promoting free bilateral trade. During the meeting, senior officials discussed recent updates on the GSP country practice review for Indonesia, and agreed to work together to address issues of agriculture, digital trade, financial services, fisheries, and labor. [443] In addition, the countries approved a work plan to address intellectual property concerns with respect to Indonesia’s citation in USTR’s 2018 Special 301 Report . The Special 301 report addressed various issues, including patent law in relation to local manufacturing and use requirements, and compulsory licenses. [444]

Laos

On January 31, 2019, the United States and Laos held the second meeting under their TIFA in Vientiane, Laos. The countries discussed strengthening opportunities in various areas, including electronic payments, automotive standards, digital trade, and intellectual property. [445]

Nepal

On November 13, 2018, the United States and Nepal held their fourth TIFA Council meeting in Washington, DC, to strengthen trade and investment relations. Both countries discussed a range of topics, including business environment and labor reforms, investment promotion, execution of the WTO Trade Facilitation Agreement, digital trade and e-commerce, sanitary and phytosanitary measures, and market access and reform in Nepal’s agricultural sector. The countries also addressed methods of creating and improving innovation in the business environment by increasing intellectual property protection and facilitating foreign investment. Nepal also cited its interest in increasing its utilization of the Nepal Trade Preferences Act, which allows certain products from Nepal to be imported duty free into the United States. [446]

New Zealand

During July 19–20, 2018, the United States and New Zealand met under their TIFA in Washington, DC. During the meetings, U.S. officials discussed the two countries’ expanding trade and investment relations, including cooperation on areas of mutual interest. Topics addressed included trade barriers in third-country markets, unfair trade practices, intellectual property, and cooperation between the United States and New Zealand at the WTO and APEC. [447]

Thailand

On April 10, 2018, the United States and Thailand held a Trade and Investment Council meeting in Washington, DC. The countries discussed ways to expand trade relations and address trade issues. Both countries restated the importance of their relationship and cooperation on trade expansion. Topics addressed included the U.S. trade agenda and questions related to Thai barriers to U.S. exports, such as agriculture, customs, intellectual property, and labor issues. Senior government officials also addressed regional and multilateral engagements, including implementation of the WTO Trade Facilitation Agreement and approaches to advancing the ASEAN-U.S. Trade and Investment Framework Arrangement. [448]

Ukraine

The United States and Ukraine met on October 23, 2018, under their Trade and Investment Cooperation Agreement (TICA). The meeting, held in Washington, DC, under the auspices of the U.S.-Ukraine Trade and Investment Council, was the eighth meeting since the TICA entered into force in 2008. During the meeting, the two countries discussed ways to expand trade in agricultural and industrial goods, work done by working groups on technical and sanitary and phytosanitary barriers to trade, and the new law implemented on collective management in Ukraine. Additional topics of discussion were the governance of electronic payment systems, the environment for refunds of Ukraine’s value-added tax, transportation logistics, and agricultural export controls. [449]

Chapter 5 U.S. Free Trade Agreements

This chapter summarizes developments related to U.S. free trade agreements (FTAs) during 2018. [450] It describes trends in U.S. merchandise trade with FTA partners, highlights the status of U.S. FTA negotiations during the year, and summarizes major activities and dispute settlement developments involving the North American Free Trade Agreement (NAFTA) and other U.S. FTAs in force during 2018.

U.S. Trade with FTA Partners in 2018

The United States was party to 14 FTAs involving a total of 20 countries as of December 31, 2018. Starting with the most recent, the FTAs in force during 2018 were the U.S.-Panama Trade Promotion Agreement (TPA) (entered into force in 2012); the U.S.-Colombia TPA (2012); the U.S.-Korea FTA (2012); the U.S.-Peru TPA (2009); the U.S.-Oman FTA (2009); a multiparty FTA with the countries of Central America and the Dominican Republic (CAFTA-DR) that includes the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua (entered into force 2006–07) and Costa Rica (2009); the U.S.-Bahrain FTA (2006); the U.S.-Morocco FTA (2006); the U.S.-Australia FTA (2005); the U.S.-Chile FTA (2004); the U.S.-Singapore FTA (2004); the U.S.-Jordan FTA (2001); NAFTA, with Canada and Mexico (1994); and the U.S.-Israel FTA (1985).

U.S. Total Merchandise Trade with FTA Partners

Total two-way merchandise trade between the United States and its 20 FTA partners was $1.6 trillion in 2018, accounting for 39.1 percent of total U.S. merchandise trade with the world. [451] The value of U.S. exports to FTA partners totaled $780.3 billion, an 8.3 percent increase from $720.3 billion in 2017; this growth exceeded the 7.6 percent increase in total U.S. exports to the world in 2018. The value of U.S. exports to most FTA partners increased in 2018; the exception was exports to Jordan. U.S. imports from FTA partners were valued at $862.6 billion, also an 8.3 percent increase from $796.6 billion in 2017. The U.S. merchandise trade deficit with all FTA partners increased 7.9 percent to $82.4 billion in 2018 (tables 5.1–5.3).

U.S. trade with the two NAFTA countries (Canada and Mexico) continued to contribute the most to overall U.S. trade with FTA partners. In 2018, these countries accounted for $1.2 trillion, or 74.8 percent, of total U.S. trade with its FTA partners. From 2017 to 2018, the value of U.S. exports to NAFTA countries rose 7.3 percent ($38.1 billion) to $563.7 billion. U.S. imports from NAFTA countries rose 8.4 percent ($51.4 billion), to $664.9 billion in 2018. As a result, the U.S. merchandise trade deficit with its NAFTA partners increased by 15.1 percent to $101.2 billion in 2018.

U.S. trade with its non-NAFTA FTA partners was valued at $414.2 billion in 2018, which was a 9.6 percent increase from 2017. U.S. exports to these FTA partners increased 11.2 percent ($21.8 billion), from $194.7 billion in 2017 to $216.5 billion in 2018. At the same time, U.S. imports from these partners increased 8.0 percent ($14.6 billion) from $183.1 billion in 2017 to $197.7 billion in 2018. U.S. exports increased more than imports, causing the U.S. merchandise trade surplus with its non-NAFTA FTA partners to increase 62.1 percent to $18.8 billion (tables 5.1–5.3).

Table 5.1 Total U.S. exports to FTA partners, by FTA partner, 2016–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown. FTA partners are ordered according to the date of entry into force of the respective FTA.

a CAFTA-DR is a multiparty FTA that includes the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica.

Table 5.2 U.S. general imports from FTA partners, by FTA partner, 2016–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

a CAFTA-DR is a multiparty FTA that includes the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica.

Table 5.3 U.S. merchandise trade balance with FTA partners, by FTA partner, 2016–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

a Negative percentage changes indicate an increase in the U.S. trade deficit or a decrease in the U.S. trade surplus. Positive percentage changes indicate a decrease in the trade deficit or an increase in the trade surplus.

b Not meaningful.

c CAFTA-DR is a multiparty FTA that includes the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica.

U.S. Imports Entered under FTAs

The value of U.S. imports entered under FTAs totaled $408.0 billion in 2018, accounting for nearly half (47.3 percent) of total U.S. imports from FTA partners and for 16.1 percent of U.S. imports from the world (tables 5.4–5.5). [452]

The value of U.S. imports entered under FTAs in 2018 increased $22.3 billion (5.8 percent), up from $385.7 billion in 2017. FTA imports from Singapore grew 147.1 percent ($2.7 billion), representing the largest percentage increase. The growth was primarily driven by large increases in imports of beverage sweeteners. [453] Imports under FTAs from Panama and Oman increased by 41.5 percent ($24 million) and 28.8 percent ($202 million), respectively; however, they changed from smaller baselines. Imports from Mexico accounted for the greatest increase in value, rising by $17.4 billion (9.5 percent) to $200.5 billion. A large part of this increase was due to an increase in motor vehicle imports from Mexico. [454] On the other hand, imports from Canada fell by $563 million (0.4 percent). In total, combined imports from the NAFTA partners rose 5.4 percent ($16.8 billion). The largest decline in U.S. imports under any FTA was seen in imports from Bahrain, largely due to a 29.5 percent drop in imports of aluminum wire. [455]

Table 5.4 U.S. imports for consumption that entered under FTA provisions, by FTA partner, 2016–18

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

a CAFTA-DR is a multiparty FTA that includes the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica.

Jordan remained the partner with the highest ratio of imports entered under an FTA to general imports, with a ratio of 88.8 percent (table 5.5). Other countries with notably high ratios include Oman (70.6 percent), Mexico (57.9 percent), and Chile (56.4 percent). The CAFTA-DR countries as a whole also had a high ratio of FTA imports to general imports, at 58.4 percent. Each CAFTA-DR partner had large ratios of FTA imports to general imports , except for Costa Rica, for which the ratio was 31.4 percent. The partners with the smallest shares of imports entered under an FTA to general imports were Israel (13.1 percent), Morocco (15.5 percent), and Singapore (16.4 percent). The imports from these countries often entered the United States free of duty under normal trade relations rates (this category is equivalent to most-favored-nation rates in other countries).

Table 5.5 Ratio of U.S. imports for consumption under FTAs to U.S. general imports, by partner, 2016–18 (percent)

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Because of rounding, figures may not add to totals shown.

a CAFTA-DR is a multiparty FTA that includes the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica.

Developments in FTA Negotiations during 2018

Since 1974, Congress has enacted Trade Promotion Authority (TPA) legislation that defines U.S. negotiating objectives and priorities for trade agreements and establishes consultation and notification requirements for the President to follow throughout the negotiation process. At the end of the negotiation and consultation process, Congress gives the agreement an up or down vote, without amendment.

The most recent renewal of this authority is contained in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which was signed into law on June 29, 2015. [456] The Act sets out 21 principal trade negotiating objectives, including objectives on trade in goods, trade in services, trade in agriculture, foreign investment, intellectual property, digital trade in goods and services and cross-border data flows, regulatory practices, and state-owned and state-controlled enterprises. There are also two negotiating objectives on currency and currency manipulation.

TPA sets out a timeline addressing the role of Congress in the FTA negotiation process. TPA procedures apply to both the negotiation of new agreements and changes to existing agreements, such as the United States-Mexico-Canada Agreement. Ninety days before negotiations are to begin, the President is required to notify Congress of his intent to enter into negotiations. [457] Thirty days beforehand, the President is to publish negotiating objectives. [458] Ninety days before an agreement is to be signed, the President is to notify Congress of his intent to enter into an agreement, [459] and 60 days before signing, the President is to publish the full text of the agreement. [460] The timeline also includes timeframes for House and Senate consideration once the implementing bill is introduced. [461]

In connection with any proposed trade agreement, USITC is to provide advice to the President as to the probable economic effect of modifications of tariff and nontariff measures on industries producing like or directly competitive articles and on consumers. [462] The USITC is also required to submit a report assessing the likely impact of the agreement on the U.S. economy as a whole and on specific industry sectors 105 days after the trade agreement is signed. [463]

On November 30, 2018, the President signed the United States-Mexico-Canada Agreement. Developments during 2018 leading up to his signature are described below. On October 16, 2018, U.S. Trade Representative (USTR) Lighthizer notified Congress of the President’s intent to negotiate trade agreements with the United Kingdom (UK), the European Union (EU), and Japan. [464] This notification launched the congressionally mandated 90-day consultation period under Trade Promotion Authority before the launch of negotiations. [465]

Negotiating objectives for the UK, the EU, and Japan were released over the December 2018–February 2019 period. In addition to these negotiating objectives, the negotiating objectives for agreements with EU and UK also included language on regulation and competitive safeguards on dominant carriers to ensure fair competition in the telecommunications industry; [466] on the establishment of consultative mechanisms and disciplines that address subsidy issues; [467] and on commitments to trade engagement with Israel. [468] Negotiating objectives for the agreement with Japan also included language on preserving fair competition in the telecommunications industry, explicitly through “transparent regulation and an independent regulator.” [469]

U.S.-UK Trade Agreement

On November 16, 2018, USTR announced a request for public comment on a proposed U.S.-UK trade agreement. To help in the development of its negotiating objectives, USTR specifically invited comments on relevant barriers to trade, the economic costs of tariff removal to U.S. producers and consumers, product-specific barriers, customs issues, and other nontariff barriers. [470] After considering public comments and hearing testimony, USTR published its negotiating objectives for a trade agreement with the UK in February 2019. [471]

The UK cannot enter into a new trade agreement with non-European Union (EU) countries before it exits the EU because the EU has exclusive competence over its Common Commercial Policy, including its trade policy. [472] However, discussions between the UK and the United States on strengthening bilateral trade and investment ties were initiated in two separate forums.

The U.S.-UK Trade and Investment Working Group began meeting in July 2017 with the objective of reaffirming and strengthening commercial relationships between U.S. and UK businesses ahead of the UK’s exit from the EU. [473] The group met on four subsequent occasions in November 2017, [474] March 2018, [475] July 2018, [476] and November 2018. [477] At these meetings, the group discussed industrial and agricultural goods, services and investment, digital trade, intellectual property rights, regulatory issues related to trade, and small and medium-sized enterprises (SMEs). [478]

The U.S.-UK SME Dialogue began meeting in March 2018 to identify resources available from both countries to assist SMEs and to hear from SMEs on the opportunities and challenges they experience when trading bilaterally. [479] The Dialogue convened on two more occasions, in London in July 2018 [480] and in Washington, DC, in November 2018. Discussions focused on access to finance and wider business support for SMEs, intellectual property protection, and the use of e-commerce tools to promote SME exports. [481]

U.S.-EU Trade Agreement

On November 15, 2018, USTR announced a request for public comment on a proposed U.S.-EU trade agreement. Written public comments on the negotiating objectives for a trade agreement were due on December 10, 2018. Again, to aid in the development of its negotiating objectives, USTR specifically invited comments on relevant barriers to trade, economic costs of tariff removal to U.S. producers and consumers, product-specific barriers, customs issues, and other nontariff barriers. USTR also held a public hearing on negotiating objectives for a U.S.-EU trade agreement on December 14, 2018, hearing testimony of industry representatives from the agriculture, biotechnology, manufacturing, and telecommunications and software sectors, among others. [482] After considering public comments and hearing testimony, USTR published negotiating objectives for a trade agreement with the EU in January 2019. [483]

President Trump and European Commission President Jean-Claude Juncker issued a joint statement on July 25, 2018, to announce the formation of an Executive Working Group (EWG). Headed by the EU Commissioner for Trade Cecilia Malmström and USTR Lighthizer, the EWG was formed to make progress on reducing transatlantic barriers to trade. Goals of the EWG included working to eliminate non-auto industrial tariffs and nontariff barriers, and to increase trade in services, chemicals, pharmaceuticals, medical products, and soybeans. As part of the activities of the EWG, the United States and EU also agreed to strengthen cooperation on trade in energy; to launch a dialogue on standards in order to reduce trade costs and bureaucratic obstacles; and to address unfair trading practices via World Trade Organization (WTO) reform. [484]

After the EWG was formed, Commissioner Malmström and USTR Lighthizer met in Brussels on September 10, 2018, to launch formal discussions under the group. Further meetings of the EWG at the ministerial level were held in New York on September 25, 2018, and in Washington, DC on November 14, 2018. Additional meetings were held at the technical level between U.S. and EU officials, including a technical meeting on regulatory issues in Washington, DC on October 23–26, 2018. Relevant regulatory departments and agencies of the U.S. government and the European Commission participated in these meetings. [485]

To implement certain elements of the July 25, 2018, joint statement, the European Commission needs specific negotiating mandates to be authorized by the Council of the European Union, which is composed of government ministers from each EU member state. [486] In preparation for negotiations on industrial tariffs and on product conformity assessment, the European Commission submitted draft negotiating mandates to the Council of the European Union for member state approval on January 18, 2019. [487] EU member states must approve the proposed mandates before trade negotiations can begin. [488] On March 14, 2019, the European Parliament rejected a draft resolution to recommend the opening of EU-U.S. trade negotiations on industrial tariffs and on product conformity assessment. The rejection by Parliament is not binding, however, and on April 15, 2019, the European Council approved mandates for the Commission to open negotiations on elimination of tariffs for industrial goods and on conformity assessment. [489]

U.S.-Japan Trade Agreement

On November 15, 2018, USTR announced a request for public comment on a proposed U.S.-Japan trade agreement. Written public comments on the negotiating objectives for a trade agreement were due on November 26, 2018. To help it develop its negotiating objectives, USTR specifically invited comments on relevant barriers to trade, economic costs of tariff removal to U.S. producers and consumers, product-specific barriers, customs issues, and other nontariff barriers. USTR also held a public hearing on negotiating objectives for a U.S.-Japan trade agreement on December 10, 2018, hearing testimony of industry representatives from the agriculture, biotechnology, manufacturing, and telecommunications and software sectors, as well as others. [490] Negotiations started in April 2019. [491]

After considering public comments and hearing testimony, USTR published negotiating objectives for a trade agreement with Japan on December 21, 2018. [492] Unlike the EU and UK negotiating objectives, one of the explicit goals of the U.S.-Japan negotiation is improving the trade balance and reducing the bilateral trade deficit. [493] USTR also identified regulatory compatibility to facilitate U.S. exports in key goods sectors, including pharmaceuticals, medical devices, cosmetics, information and communication technology equipment, motor vehicles, and chemicals. [494] With regard to motor vehicles, USTR objectives focused specifically on obtaining fair and more equitable trade in the motor vehicle sector, including provisions designed to address nontariff barriers in Japan as well as to increase production and jobs in the United States. [495] Also, unlike previous trade agreement negotiations, USTR has elected to pursue negotiations with Japan in stages. [496]

Several discussions at the ministerial and executive level took place in 2018 between the United States and Japan. Japanese Minister for Economic Revitalization Toshimitsu Motegi and USTR Lighthizer engaged in ministerial consultations on August 8–9, 2018, in Washington, DC, agreeing to deepen bilateral economic cooperation. [497] President Trump and Prime Minister Abe announced that the United States and Japan would begin negotiations for a U.S.-Japan trade agreement on September 26, 2018. [498] Vice President Pence and Deputy Japanese Prime Minister Taro Aso also convened the third meeting of the U.S.-Japan Economic Dialogue in Japan in November 2018, where participants discussed further expanding trade and investment between Japan and the United States. [499]

United States-Mexico-Canada Agreement (USMCA)

On November 30, 2018, the United States, Mexico, and Canada signed the United States-Mexico-Canada Agreement (USMCA) in Buenos Aires, Argentina. [500] NAFTA remains in effect until each country’s legislature ratifies USMCA, although any of the countries may withdraw from NAFTA six months after issuing written notice to the other parties. [501] The United States, Mexico, and Canada signed USMCA after completing the negotiations that began on August 16, 2017, in Washington, DC. [502] The two primary goals of the negotiations were (1) to update NAFTA with modern provisions on digital trade, intellectual property, cybersecurity, good regulatory practices, and treatment of state-owned enterprises; and (2) to rebalance NAFTA in a way that makes it easier to reduce the U.S. trade deficit with Canada and Mexico. [503]

Five negotiating rounds were completed in 2017, and in 2018, negotiations continued with round six (table 5.6). [504] At the end of round six, the chapter on corruption was completed. [505] USTR announced at the end of round seven that the negotiators had closed out three additional chapters: those on good regulatory practices, administration and publication, and sanitary and phytosanitary (SPS) measures. Negotiators also completed work on sectoral annexes related to chemicals and proprietary food formulas, made substantial progress on telecommunications and technical barriers to trade, and agreed to include a chapter on energy. [506]

Table 5.6 Timetable of major NAFTA negotiations and signing USMCA, 2017–18

Source: USTR, 2018 Trade Policy Agenda and 2017 Annual Report , March 2018; USTR. “ Trilateral Statement on the Conclusion of the Fifth Round of NAFTA Negotiations ,” November 21, 2017; Gobierno de México, Embajada de México en Estados Unidos, “ Continúan los trabajos de renegociación del TLCAN en Washington D.C .” (The NAFTA renegotiation work continues in Washington, DC), August 3, 2018; USTR, “ USTR Statement on Trade Negotiations with Mexico and Canada ,” August 31, 2018; USTR, “ Joint Statement from United States Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland ,” September 30, 2018; USTR, 2019 Trade Policy Agenda and 2018 Annual Report , March 2019.

After round seven, officials from all three countries continued to engage in negotiations. In May 2018, USTR stated that after weeks of continuous discussions, negotiators had covered a large number of complex issues such as intellectual property, dairy and agriculture, de minimis levels, energy, labor, and more. [507] In August 2018, the United States and Mexico reached a preliminary agreement, while negotiations with Canada continued. As a result, on August 31, 2018, the President notified Congress of his intent to sign a trade agreement with Mexico, and Canada if it was willing, in 90 days. [508] Finally, on September 30, 2018, the United States and Canada reached an agreement, alongside Mexico, on the United States-Mexico-Canada Agreement (USMCA). [509] USTR published the full text of the agreement on the same day. The agreement was signed on November 30, 2018.

USMCA consists of 34 chapters, 4 annexes, and 14 side letters that address trade issues among the United States, Mexico, and Canada. It covers trade in goods and services in areas such as rules of origin, customs facilitation, SPS measures, technical barriers to trade, foreign investment, intellectual property, government procurement, competition policy, and labor and environmental standards. [510] In addition, USMCA includes new chapters on topics such as digital trade, anticorruption, competitiveness, good regulatory practices, and SMEs. [511] The chapters on Labor and Environment, which were covered as side agreements in NAFTA are now incorporated into the core text of the agreement and are subject to dispute settlement. [512]

Highlights of the signed agreement relative to NAFTA include: [513]

• New rules of origin for automobiles . Under USMCA, an automobile qualifies for duty-free treatment only if 75 percent of the content originates in the NAFTA region, compared to 62.5 percent under NAFTA. Additionally, at least 40 percent of a vehicle’s content—45 percent for trucks—must be produced by workers in the NAFTA region who earn an average of at least $16 per hour. [514]

• Modernized SPS rules and expanded food and agriculture market access . Under USMCA, U.S. exports of dairy products gained broader access to Canada’s market that NAFTA did not allow. Other agricultural products, including U.S. poultry and egg products, also gain improved access to the Canadian market. [515] The USMCA chapter on SPS measures specifies that the United States, Mexico, and Canada agree to (1) increase transparency in developing and implementing SPS measures, (2) make decisions based on science, and (3) work together to enhance compatibility of SPS measures in the region. [516]

• New protections for U.S. intellectual property . USMCA regulations offer strengthened protection and enforcement in the following areas: trade secrets, regulatory data protection, patents, trademarks, geographical indications, copyright, and internet service provider provisions. [517] For instance, USMCA offers protection against trade secret misappropriation, including civil remedies and criminal penalties. [518]

• Facilitating digital trade and e-commerce : USMCA, if it enters into force, would be the first U.S. free trade agreement to include a chapter on digital trade. Key provisions would prohibit discriminatory treatment of cross-border data transfers and forced localization of computing facilities, as well as limit disclosure of proprietary source code and liability for third-party content. [519]

• Stronger labor provisions: While labor was covered in a side agreement in NAFTA, USMCA labor provisions are in the core text as an individual chapter and subject to dispute settlement. USMCA requires parties to adopt and maintain labor rights as recognized by International Labor Organization declarations. An annex to the labor chapter commits Mexico to specific legislative actions to enhance collective bargaining rights. [520]

• Stronger environment provisions: While environment was covered in a side agreement in NAFTA, USMCA environment provisions are in the core text as an individual chapter and subject to dispute settlement. USMCA requires parties to adopt and maintain laws, regulations, and other measures to fulfill their obligations under the Convention on International Trade in Endangered Species and Wild Flora and Fauna (CITES), and prohibits parties from providing certain fishery subsidies. [521]

• Addressing currency manipulation : USMCA would be the first U.S. free trade agreement to oblige parties to regularly report on interventions in the foreign exchange market, a provision subject to dispute settlement. [522]

• Limitations on investor-state dispute settlement: USMCA would eliminate investor-state dispute settlement (ISDS) between the United States and Canada after a three-year phase-out period. The existing ISDS mechanism between the United States and Mexico would be limited to five sectors; outside these sectors, potential claims would be restricted substantively and procedurally. [523]

• Promoting “good regulatory practices” : USMCA lays out general requirements for developing and promulgating regulations, including publishing proposed regulatory changes and providing opportunities for public comment. USMCA makes these provisions subject to dispute settlement. Parties are encouraged to promote regulatory compatibility and regulatory cooperation under the agreement. [524]

Developments in the North American Free Trade Agreement (NAFTA) [525]

The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico entered into force on January 1, 1994. All of the agreement’s provisions were implemented, as scheduled, by the three parties by January 1, 2008, with the exception of the NAFTA cross-border trucking provisions. [526]

NAFTA’s central oversight body is the Free Trade Commission (FTC), which is responsible for overseeing NAFTA’s implementation, as well as activities under its dispute settlement provisions. The FTC itself has not officially met since 2012. [527] However, since October 2012, trade ministers, senior officials, and experts from the three member countries have met regularly to consider approaches to expand and deepen trade and investment opportunities in North America, and beginning in 2017, met regularly to renegotiate the agreement. As noted above, the renegotiated agreement—USMCA—was signed on November 30, 2018. The original NAFTA remains in effect pending final actions approving the USMCA by each of the three countries. Per article 2205 of the agreement, any of the countries may also withdraw from NAFTA six months after issuing written notice to the other parties. [528]

The following sections describe the major activities of NAFTA’s Commission for Labor Cooperation and Commission for Environmental Cooperation during 2018, as well as dispute settlement activities under NAFTA Chapters 11 and 19 in that year.

NAFTA ’ s Commission for Labor Cooperation

The Commission for Labor Cooperation (CLC), composed of a ministerial council and an administrative secretariat, was established under the North American Agreement on Labor Cooperation (NAALC). The NAALC is a supplemental agreement to NAFTA that aims to promote effective enforcement of domestic labor laws and to foster transparency in administering them. The CLC is responsible for implementing the NAALC.

Each NAFTA partner has a national administrative office (NAO) within its labor ministry to act as the contact point with the other parties, the administrative secretariat, other government agencies, and the public. [529] Another NAO function is to receive and respond to public communications on labor law matters arising in another NAALC country. The United States’ NAO is the Office of Trade and Labor Affairs in the U.S. Department of Labor (USDOL). Each NAO sets its own domestic procedures for reviewing and responding to public communications. Since 2010, the NAOs have also undertaken the activities of the secretariat, including carrying out the cooperative activities of the CLC. These activities range from seminars and conferences to joint research projects and technical assistance. [530]

As of the end of 2018, there were three submissions under review at the NAALC, the same number as last year. One with the United States’ NAO (involving Mexico), [531] and two with the Canadian NAO (one involving Mexico and one involving the United States). [532]

On December 22, 2018, Mexico’s executive branch submitted legislation to its Congress to amend Mexico’s Federal Labor Law by implementing constitutional reforms to the labor justice system enacted in February 2017. One of the reforms consists of transferring the authority to adjudicate labor disputes from the current tripartite Conciliation and Administrative Boards to new labor courts, while transferring the registration of unions and collective bargaining agreements to a new federal institution. The U.S. Administration is consulting with the Mexican government about the reforms so that final legislation improves labor standards, protects Mexican workers’ rights, and complies with Mexico’s obligations under USMCA. [533]

NAFTA’s Commission for Environmental Cooperation

The Commission for Environmental Cooperation (CEC) was established under Article 8 of the North American Agreement on Environmental Cooperation (NAAEC). The NAAEC is a supplemental agreement to NAFTA that came into force at the same time as NAFTA; it was designed to support NAFTA’s environmental goals, which are to protect and improve the environment, support sustainable development, and increase cooperation in reaching these goals. [534] The CEC was established to support cooperation among the parties to reach these goals. [535]

Articles 14 and 15 of NAAEC offer citizens and nongovernmental organizations a mechanism to help enforce environmental laws in the NAFTA countries. Article 14 governs allegations of failures to effectively enforce environmental laws submitted for review by the CEC. It sets out guidelines about criteria for submissions and for requesting a response from the relevant NAFTA party regarding the submission. Article 15 outlines the CEC Secretariat’s obligations in considering the submissions and the development of a factual record concerning the allegations raised in the submissions. [536] At the end of 2018, five submissions remained active under Articles 14 and 15. Two involved Canada, with one submitted in 2017, and the other in 2018; and three involved Mexico, all submitted in 2018 (table 5.7).

Table 5.7 Active submissions as of yearend 2018 under Articles 14 and 15 of the North American Agreement on Environmental Cooperation

Source: CEC, “ Submission on Enforcement Matters: Active Submissions ” (accessed June 14, 2019).

a Refers to the country against which an allegation was filed.

b CEC,“ Submissions ” (accessed July 2, 2019).

At the 25th regular session of the CEC Council on June 27, 2018, in Oklahoma City, Oklahoma, the CEC focused on “Innovation and Partnerships for Green Growth.” [537] The session showed ways that partnerships among indigenous, academic, youth, and private sectors at the federal, state, and local levels can foster innovation, entrepreneurship, and technological advances that support environmental protection and healthier ecosystems in North America. [538]

In Oklahoma, the three countries’ academic, government, and private sector partners demonstrated how scientific innovations such as radar and computer modeling assist in monitoring the atmosphere and climate developments. In this way, they support research, policy-making, and preparedness efforts to address extreme events and mitigate their impacts on human health, the environment, and economic growth and productivity. [539] For example, these technologies can help the CEC track North American species migrations and protect species and their habitats—both critical to environmental sustainability and ecotourism.

Also at this meeting, the CEC held a public session with experts from state governments, academia, and the private sector to address ways to promote innovation and partnerships supporting green growth in North America. [540] In addition, the Council reviewed progress to date in implementing 10 cooperative projects related to supporting legal and sustainable trade in select North American species and improving industrial energy efficiency. [541]

The Border Environment Cooperation Commission and the North American Development Bank were created in 1994 under a NAFTA side agreement to address environmental issues in the U.S.-Mexico border region. The bank’s projects are certified by the Border Environmental Cooperation Commission. As of December 31, 2018, the bank had contracted a total of about $3.1 billion in loans and grants to help finance 257 projects estimated to cost a total of $9.8 billion. [542]

NAFTA Dispute Settlement

The dispute settlement provisions of NAFTA—found in Chapters 11 (Investment) and 19 (Review and Dispute Settlement in Antidumping/Countervailing Duty Matters)—cover a variety of areas. [543] The sections below describe developments during 2018 in NAFTA Chapter 11 investor-state disputes and Chapter 19 binational reviews of final determinations of antidumping and countervailing cases. Appendix table A.26 presents an overview of developments in NAFTA Chapter 19 dispute settlement cases to which the United States was a party in 2018.

NAFTA Chapter 11 Dispute Settlement Developments

Chapter 11 of NAFTA includes provisions designed to protect cross-border investors and their investments. It establishes a mechanism for the settlement of investment disputes that seeks to assure a “minimum standard of treatment” for investors of the parties. [544] An individual investor who alleges that a NAFTA country has breached its investment obligations under Chapter 11 may pursue arbitration through internationally recognized channels. [545] A key feature of the Chapter 11 arbitral provisions is the enforceability in domestic courts of final awards made by arbitration tribunals. [546] In 2018, there were six active Chapter 11 cases filed against Canada by U.S. investors, [547] and two filed against Mexico by U.S. investors. [548] There were no cases filed against the United States.

NAFTA Chapter 19 Dispute Panel Reviews

Chapter 19 of NAFTA provides for a binational panel to review final determinations made by national investigating authorities in antidumping and countervailing duty cases. [549] Such a panel serves as an alternative to judicial review by domestic courts and may be established at the request of any involved NAFTA country. [550] At the end of 2018, the NAFTA Secretariat listed five binational panels active under Chapter 19 (table 5.8). [551] The United States filed one case contesting Mexico’s determinations; Canada filed three cases contesting U.S. determinations; and Mexico filed one case contesting U.S. determinations. Table A.26 lists all chapter 19 panels with developments in 2018, including those that were terminated.

Table 5.8 NAFTA Chapter 19 binational panels, active reviews through 2018

Source: NAFTA Secretariat, “ Dispute Settlement: Status Report of Panel Proceedings ” (accessed June 14, 2019).

a The United States filed the first case contesting Mexico’s determination. Canada filed the next three cases, and Mexico filed the last case, both countries contesting U.S. determinations.

b In Canada, the Canada Border Services Agency makes final dumping determinations and the Canadian International Trade Tribunal makes subsidy determinations and injury determinations. In Mexico, all determinations are made by the Secretariat of the Economy. In the United States, dumping and subsidy determinations are made by the U.S. Department of Commerce and injury determinations are made by USITC. NAFTA Secretariat, “ Overview of the Dispute Settlement Provisions ” (accessed June 14, 2019).

Developments in Other U.S. FTAs Already in Force during 2018

In 2018, U.S. officials met with FTA partners for discussions on a variety of matters, including labor and environmental issues, enhancing trade and investment, and dispute settlement. [552] Highlights of these consultations are presented in this section.

To date, the United States has implemented 14 FTAs with a total of 20 countries. [553] Twelve of the 14 U.S. FTAs have labor provisions to protect worker rights and facilitate cooperation on labor issues, and another includes such provisions in a supplemental agreement. [554] The USDOL’s Bureau of International Labor Affairs monitors reports and submissions made under the labor provisions of U.S. trade agreements. [555] Similarly, 12 of the 14 FTAs contain environmental provisions to facilitate cooperation on environmental matters and to ensure that domestic environmental laws are effectively enforced, and another includes such provisions in a supplemental agreement. [556] Lastly, 12 of the 14 U.S. FTAs have investment provisions designed to protect foreign investors and their investments, as well as to facilitate the settlement of investment disputes. [557] The U.S. Department of State assists companies involved in investment disputes with foreign governments. [558] Highlights of the past year’s activities are discussed below.

U.S.-Australia FTA

The U.S.-Australia Free Trade Agreement was signed on May 18, 2004, and entered into force on January 1, 2005. [559] In 2018, discussions in the U.S.-Australia Free Trade Agreement’s Joint Committee [560] led to Australia’s removal of a 14-year Australian ban on U.S. heat-treated beef products in May 2018. Australia also removed its luxury car tax on reimported cars refurbished overseas. [561]

U.S.-Bahrain FTA

The U.S.-Bahrain Free Trade Agreement was signed September 14, 2004, and entered into force on August 1, 2006. [562] In 2018, the United States and Bahrain signed a Memorandum of Understanding on Trade in Food and Agriculture Products that said that Bahrain will continue to accept existing U.S. export certifications for food and agricultural products. [563]

Labor

The United States and Bahrain discussed various aspects of labor rights, including (1) improving Bahrain’s capacity to counter employment discrimination; (2) possible legal amendments to make Bahrain’s labor laws more consistent with international labor standards; (3) enforcement of labor laws concerning freedom of association and collective bargaining; and, (4) encouraging dialogue among stakeholders in Bahrain on labor matters. [564]

Environment

On March 7, 2018, senior officials from the two governments held the inaugural meeting of the Joint Forum on Environmental Cooperation under the Memorandum of Understanding on Environmental Cooperation––negotiated in parallel with the U.S.-Bahrain FTA––as well as the inaugural meeting of the Subcommittee on Environmental Affairs held under the FTA. [565] They reviewed progress in implementing commitments under the FTA’s Environment chapter, and discussed areas of potential cooperation under the 2017–2021 Work Program on Environmental Cooperation that was approved in August 2017. [566] These areas included (1) projects and programs to improve air quality and reduce adverse health effects from air pollution; (2) protection of coastal environmental zones and overexploitation of marine resources; (3) capacity to protect endangered species—for example, through the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES); and (4) promotion of the environmental technology business sector. [567]

United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR)

The United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) was signed on May 28, 2004, with El Salvador, Honduras, Nicaragua, Guatemala, and Costa Rica; it was signed with the Dominican Republic on August 1, 2004. The CAFTA-DR entered into force with all parties by January 1, 2009. [568]

Labor

In 2018, the United States continued engagement with the Dominican Republic over concerns identified in a 2013 USDOL report regarding labor laws in the Dominican sugar sector. In May 2018, USDOL published its sixth periodic review of the implementation of the 2013 report’s recommendations. [569] In addition, USDOL conducted missions in 2018 to Honduras as a follow-up to the 2015 multiyear Labor Rights Monitoring and Action Plan, which set out concrete steps that the government of Honduras must take to improve the application of its labor laws. In October 2018, USDOL published a progress report on the status of implementation of the plan. [570]

In 2018, Guatemala established a National Tripartite Commission on Labor Relations and Freedom of Association. The commission contributed to the closure in November 2018 of a complaint by Guatemalan workers to the International Labour Organization (ILO) alleging violations of the ILO’s freedom of association provisions. [571]

Environment

Officials met twice in 2018 to discuss implementation of the environmental provisions of CAFTA-DR. [572] The Environmental Affairs Council met in June 2018 in Santo Domingo, Dominican Republic, with a particular focus on combating wildlife trafficking and illegal logging. [573] The council also discussed the role of environmental courts and tribunals in enforcing environmental laws to help implement the Environmental Cooperation Agreement established under CAFTA-DR. The Secretariat for Environmental Matters, an independent body, received three new submissions from the public claiming a failure to effectively enforce a CAFTA-DR party’s environmental laws. The Secretariat has received 41 such submissions since its establishment in 2007. [574]

U.S.-Chile FTA

The U.S.-Chile Free Trade Agreement was signed June 6, 2003, and entered into force on January 1, 2004. [575] On October 16, 2018, officials from the two countries held the 12th meeting of the United States-Chile Free Trade Commission, which is responsible for the ongoing implementation of the U.S.-Chile FTA. [576] A major focus of that meeting was addressing longstanding intellectual property rights issues in Chile. [577]

Labor

In 2018, USDOL released its annual report on child labor, citing Chile as having made “moderate advancement” in efforts to eliminate the worst forms of child labor. The report also mentioned positive measures in the areas of legal framework, labor and criminal law enforcement, and coordination of government efforts, as well as government policies and social programs. [578]

Environment

In 2018, U.S. and Chilean officials met for the eighth meeting of the Environmental Affairs Council under the agreement, as well as the sixth meeting of the Joint Commission for Environmental Cooperation. [579] The two sides approved a Work Program covering 2018–20, which sets out work priorities, including strengthening effective implementation and enforcement of environmental laws, promoting conservation, and promoting improved air and water quality. [580]

U.S.-Colombia TPA

The U.S.-Colombia Trade Promotion Agreement was signed November 22, 2006, and entered into force on May 15, 2012. [581] On January 1, 2019, the eighth annual set of tariff reductions took effect under the agreement; the agreement should be fully in effect 10 years after its entry into force, or 2022. On August 3, 2018, the United States and Colombia held the second meeting of the Free Trade Commission, the body established to review implementation of the United States-Colombia Trade Promotion Agreement. [582]

Labor

The two governments held meetings about the Labor Chapter of the FTA in February and December 2018. Specifically, they met to discuss Colombia’s implementation of recommendations made in the 2017 report issued by USDOL. [583] These recommendations addressed issues concerning Colombia’s labor law inspection system, fines for employers who violate labor laws, abusive subcontracting and collective pacts, and prosecution of violence and threats against unionists. [584]

Environment

In July 2018, the United States and Colombia signed the Agreement Establishing a Secretariat for Environmental Enforcement Matters consistent with the requirements of the FTA. The independent secretariat is responsible for receiving submissions from the public alleging that Colombia is failing to effectively enforce its environmental laws and developing factual records regarding such submissions when directed by an FTA party to do so. The two partners also finalized selection of an Executive Director to oversee the Secretariat’s functions. [585]

U.S.-Israel FTA

The U.S.-Israel Free Trade Agreement was signed April 22, 1985, and entered into force on September 1, 1985. [586] The United States-Israel Joint Committee is the central oversight body for the agreement, but it has not met since February 2016. [587] In November 2018, the two sides held the first round of negotiations on an agreement to succeed the 2004 U.S.-Israel Agreement on Trade in Agricultural Products. The 2004 agreement, which addressed market access in agricultural products, was supposed to expire in December 2008, but has been extended each year to provide time to negotiate a new agreement. According to USTR, the 2004 agreement provides Israel with duty-free access to 90 percent of agricultural tariff lines, whereas Israel provides the United States with duty-free access to only 72 percent. [588]

U.S.-Jordan FTA

The U.S.-Jordan Free Trade Agreement was signed October 24, 2000, and entered into force on December 17, 2001; the U.S.-Jordan FTA was fully implemented as of January 1, 2010. [589] The Joint Committee that oversees the agreement met last in May 2016, discussing issues concerning trade and investment, labor, agriculture, and technical barriers to trade in agriculture, as well as aspects of WTO agreements. [590] The Qualifying Industrial Zone program allows products with a certain amount of Israeli content to enter the United States duty free if manufactured in Jordan (this is also true of such products when made in Egypt or in the West Bank and Gaza). In 2018, U.S. imports from Jordan under the Qualifying Industrial Zones were $12.9 million, less than 1.0 percent of total U.S. imports from Jordan. [591]

Labor

The United States and Jordan signed the Implementation Plan Related to Working and Living Conditions of Workers in Jordan in 2013. The plan addresses concerns about Jordan’s garment factories, such as anti-union discrimination against foreign workers, accommodation conditions for foreign workers, and gender discrimination and harassment. In 2018, the two parties continued work toward completing the plan, in particular addressing inspection of living conditions for garment workers by Jordan’s Ministry of Labor. In December 2018, the U.S. Department of Labor visited Jordan to press for the issuance of directives under the plan, as well as of outreach materials for migrant workers. [592]

Environment

In February 2018, the two parties held a Joint Forum on Environmental Cooperation in Amman, Jordan. [593] During the Joint Forum, the parties reviewed accomplishments under the 2014–18 Environmental Work Program and approval of a new Work Program for 2018–21. The new work program sets out activities addressing effective enforcement of environmental laws, protecting wildlife, and sustainably managing wildlife, ecosystems, and natural resources by strengthening legislation implementing the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). [594]

U.S.-Korea FTA (KORUS)

On January 5, 2018, representatives of the United States and South Korea met in Washington, DC, to negotiate modifications and amendments to the U.S.-Korea Free Trade Agreement (KORUS). The two countries discussed solutions to crosscutting barriers as well as sector-specific barriers to trade in key industrial goods sectors. [595] These discussions continued in a meeting in Seoul on January 31–February 1, 2018, where views on market access and tariffs were exchanged. [596] On March 28, 2018, U.S. Trade Representative Lighthizer and South Korean Minister for Trade Hyun Chong Kim reached an agreement in principle on the general terms of the amendments to the KORUS agreement. [597] As part of this last round of talks, the two countries also agreed on terms for a country exemption for South Korea from the steel import tariffs imposed by Presidential Proclamation 9705 in exchange for quantitative limitations on U.S. imports of steel from South Korea. [598] Subsequent meetings on the progress of KORUS revisions took place in Washington, DC, between Trade Representative Lighthizer and Trade, Industry, and Energy Minister Paik Ungyu on April 23, 2018, and between Trade Representative Lighthizer and Trade Minister Hyun Chong Kim on July 27, 2018. [599]

On September 3, 2018, USTR and South Korea’s Ministry of Trade, Industry, and Energy published the agreed outcome of the negotiations to amend and modify KORUS. [600] Representatives of the United States and South Korea signed a number of amendments to KORUS and related commitments on September 24, 2018, in New York. [601] Notable changes were made on the following issues:

Automotive Products. South Korea agreed to extend the phaseout of the 25 percent U.S. tariff on South Korean trucks from 2021 to 2041. [602] It also agreed to several provisions pertaining to recognition of standards, committing to (1) double the number of U.S.-origin vehicles per manufacturer that may be imported annually and sold in South Korea if they meet U.S. safety standards in lieu of South Korean safety requirements, (2) recognize U.S. standards for auto parts needed to service U.S. vehicles, and (3) eliminate duplicative or additional emissions testing of U.S. vehicles for the South Korean market. [603] With regard to emissions standards, South Korea agreed to expand the “eco-credit” cap from 14 grams of carbon dioxide per kilometer to 17.9 grams (the current U.S. cap), and to consider more lenient targets for small-volume manufacturers in the forthcoming implementing regulations for the 2021–25 Corporate Average Fuel Economy standards. [604]

Customs. South Korea agreed to make changes to the procedures of the South Korean Customs Service for verifying the origin of exports from the United States for claims of preferential tariff treatment under KORUS. The two sides also committed to setting up a working group to monitor and address future issues. [605]

Pharmaceuticals. The United States secured a commitment from South Korea to amend its Premium Pricing Policy for Global Innovative Drugs, ensuring nondiscriminatory treatment for U.S. pharmaceutical exports in compliance with South Korea’s obligations under KORUS. [606]

The revised agreement also clarifies and restricts the investor-state dispute settlement application under KORUS, [607] introduces a new provision increasing the transparency of trade remedy procedures, [608] and provides preliminary modifications to the rules of origin for South Korean textiles. [609]

Annual meetings of committees formed under KORUS continued to convene in 2018. The Sanitary and Phytosanitary Procedures (SPS) and Agriculture Committees, formed in efforts to align biotechnology policies and pesticide maximum residue limits and to resolve SPS barriers to trade, met most recently in Washington, DC, in November 2018, and made substantive progress on a number of these issues. [610]

The South Korean government submitted the bill to the National Assembly for ratification on October 12, 2018, and the National Assembly ratified the revised KORUS agreement on December 7, 2018. [611] On the U.S. side, the President implemented the changes by proclamation pursuant to his authority in section 201(b) of the United States-Korea Free Trade Agreement Implementation Act and in accordance with the consultation and layover requirement in section 104 of the act. [612] The signed KORUS modifications entered into force on January 1, 2019. [613]

U.S.-Morocco FTA

The U.S.-Morocco Free Trade Agreement was signed June 15, 2004, and entered into force on January 1, 2006. [614] The two parties held their fifth meeting of the FTA Joint Committee on October 18, 2017, concentrating on a number of agriculture and SPS issues, geographical indications (GIs), and certain textile and apparel cases. The United States and Morocco improved their understanding of their respective views on GIs during 2018, given a pending Morocco-EU agreement on the protection of GIs. In late 2018, the United States approved modifications of certain rules of origin for textiles and apparel under the FTA at Morocco’s request. [615]

Agriculture and Sanitary and Phytosanitary Measures

In the area of agricultural market access, in 2018 Morocco opened its market to imports of U.S. beef and poultry after the two sides agreed on export certificates. Morocco also agreed to speed up the phaseout of duties on 40 tariff lines covering wheat, beef, and poultry products, given that Morocco applied lower duties on EU products. Morocco also agreed to improve access to its tariff-rate quota for common wheat by increasing tenders and improving administration of the quota. [616]

Labor

Following concerns raised by the United States in 2014 under the agreement’s labor provisions, Morocco continued to carry out a new domestic worker law in 2018. This law extends protection and benefits to Moroccan workers by setting a minimum wage, limiting weekly working hours, setting a minimum age for employment, and providing for a day of rest for workers. [617]

Environment

The United States-Morocco Working Group on Environmental Cooperation met in 2018 to monitor implementation of the agreement’s Environment chapter, review accomplishments of the 2014–17 Plan of Action, and to approve a new Plan of Action for 2018–21. The new plan addresses environmental cooperation regarding technological solutions in the areas of water, air, and waste technology, as well as efforts to combat environmental crimes. It prioritizes combating wildlife trafficking, illegal logging, and illegal fishing through consultations and training. It also seeks to create opportunities for innovation and technological solutions in areas such as solid waste management, recycling, and monitoring and mitigation of pollution. [618]

U.S.-Oman FTA

The U.S.-Oman Free Trade Agreement was signed January 19, 2006, and entered into force on January 1, 2009. [619] The United States-Oman Joint Committee, which oversees the agreement, has discussed a broad range of trade issues, including trade and investment; the FTA’s customs, investment, and services chapters; possible cooperation in the broader Middle East and North Africa region; and cooperative efforts related to labor rights and environmental protection. [620]

Labor

Stemming from the agreement’s labor provisions, in 2018 Oman launched a new two-year “Decent Work Country Program” in conjunction with the United Nations’ International Labour Organization. This program is aimed at building on the previous program, which ended in 2016. The new program focuses on social protection; employment, skills, and entrepreneurship development; and international labor standards and labor governance. [621]

Environment

USTR has continued to review implementation of the U.S.-Oman FTA Environment chapter and held bilateral meetings in Muscat in March 2018 focusing on wildlife trafficking and illegal fishing. As part of these meetings, the United States and Oman signed a new Plan of Action for 2018–21. The plan sets out activities related to managing ecosystems and natural resources sustainably; combating wildlife trafficking; and promoting environmental education, training, awareness, and transparency, as well as public participation in environmental decision-making and enforcement. [622]

U.S.-Panama TPA

The U.S.-Panama Trade Promotion Agreement was signed June 28, 2007, and entered into force on October 31, 2012. [623] On January 1, 2019, the eighth round of tariff reductions under the agreement took place. The United States-Panama Free Trade Commission (FTC) is the central oversight body for the agreement, but did not meet in 2018. [624] In 2018, the two countries continued to work together to address remaining implementation issues under the agreement. The two sides expect to hold the third FTC meeting in 2019 to review implementation of the TPA. [625]

Labor

The two sides met in September 2018 to discuss various issues concerning labor law enforcement, in particular laws against child labor. [626]

Environment

The Environmental Affairs Council (EAC) and the Environmental Cooperation Commission (ECC) met in October 2018 to discuss environmental protection under the agreement’s Environment chapter, particularly wildlife trafficking, illegal logging, illegal fishing, and conservation of wetlands. The EAC approved a 2018–19 work program and working procedures for the Secretariat for Environmental Enforcement Matters, which launched at this meeting. [627] The independent secretariat aims to promote participation in environmental enforcement issues and receives and considers public submissions about the enforcement of environmental laws. [628]

The ECC discussed environmental cooperation projects completed under the 2014–17 Environmental Cooperation Work Program, as well as the status of current and planned environmental cooperation projects. These projects address issues such as illegal, unreported, and unregulated (IUU) fishing and illegal logging; wildlife trafficking; environmental management at ports; air quality; environmental impact assessments; and adoption of cleaner production practices. The ECC also approved its second work program for 2018–22. It prioritizes cooperative activities to strengthen environmental laws and regulations; improve private sector compliance with environmental laws; and increase education, transparency, and public participation to improve protection of the environment and enforcement of environmental laws. [629]

U.S.-Peru TPA

The U.S.-Peru Trade Promotion Agreement (TPA) was signed April 12, 2006, and entered into force on February 1, 2009. [630] All remaining tariff reductions, which cover only agricultural products, should be complete by 2026. The U.S.-Peru Free Trade Commission oversees the agreement and its implementation. In 2018, four of the bodies organized under the Free Trade Commission met: the Committee on Technical Barriers to Trade, the Committee on Sanitary and Phytosanitary Matters, the Committee on Trade Capacity Building, and the Working Group on Customs and Trade Facilitation. The two governments expect to hold the next Free Trade Commission meeting in 2019. [631]

Labor

In 2018, both sides continued to follow up on the issues raised in a 2016 U.S. Department of Labor (USDOL) report issued in response to a submission made under the Labor chapter of the TPA. These issues concerned Peru’s protection of fundamental labor rights and enforcement of labor laws, in particular as they relate to nontraditional exports and temporary contracting in both the agriculture and the textile industries. [632] In April 2018, USDOL issued its second periodic review of progress made in addressing these concerns, [633] and in November 2018, officials from USTR and USDOL held a teleconference with Peruvian officials to discuss efforts by Peru to address labor issues. [634] In addition, USDOL recognized Peru’s advances in combating child labor in its most recent report on the subject. [635] The USDOL report noted, among other things, that Peru increased criminal penalties for subjecting children to forced labor and had imposed its longest human trafficking sentence yet in a case involving minors. [636]

Environment

In addition to its Environment chapter, the agreement includes the Annex on Forest Sector Governance, aimed at combating illegal logging and trade in timber and wildlife products from Peru. In February 2018, Peru and the United States convened the seventh meeting of the Environmental Affairs Council (EAC) and the Environmental Cooperation Commission (ECC), as well as the ninth meeting of the Sub-committee on Forest Sector Governance (Sub-committee) in Lima. [637] The EAC reviewed the progress Peru and the United States have made to effectively implement, and comply with, the obligations under the agreement’s Environment chapter, including implementation of the Secretariat for Submissions on Environmental Enforcement Matters. The secretariat received two submissions in July 2018 claiming failure to effectively enforce environmental laws. [638]

In addition, in July 2018, the ECC exchanged views regarding the implementation of the United States-Peru Environmental Cooperation Work Program for 2015–2018. The parties highlighted cooperation regarding small-scale gold mining, environmental monitoring and enforcement, and water management in support of the agreement’s Environment chapter. [639]

On February 26, 2018, the United States Interagency Committee on Trade in Timber Products from Peru (Timber Committee) requested that Peru verify whether three shipments of timber exported to the United States in 2017 met requirements under the agreement’s Forest Annex. [640] Peru issued its timber verification report in July 2018, which could not establish the legality of one shipment. [641] In August 2018, the Timber Committee released recommendations related to this issue. Many of these included commitments already made by Peru but not yet substantially implemented, such as upgrading Peru’s timber traceability system, improving detection of illegally harvested timber, and taking stronger action against those violating Peru’s forestry laws. [642]

U.S.-Singapore FTA

The U.S.-Singapore Free Trade Agreement was signed May 6, 2003, and entered into force on January 1, 2004. [643]

Environment

In January 2018, the two governments held their biennial review under the Memorandum of Intent between the United States of America and the Republic of Singapore on Cooperation in Environmental Matters, which was negotiated in parallel with the Environment chapter of the U.S.-Singapore Free Trade Agreement. The two sides focused on shared commitments to environmental protection and sustainable natural resource use. [644] The two governments reviewed accomplishments under the 2016–17 Plan of Action, in particular efforts to combat wildlife trafficking and illegal fishing. They also agreed on a new Plan of Action for 2018–19, which focuses on (1) implementation and enforcement of environmental laws; (2) conservation and sustainable use of and trade in natural resources; and (3) the exchange of information on environmental policies, best practices in environmental protection, and innovative environmental technology and techniques for pollution management. [645]

Chapter 6 U.S. Trade Relations with Major Trading Partners

This chapter reviews U.S. bilateral trade relations with the United States’ top trading partners in 2018: the European Union (EU), China, Canada, Mexico, Japan, South Korea, India, and Taiwan (ordered according to the value of their two-way merchandise trade with the United States). For each trading partner, the chapter summarizes U.S. bilateral trade, including trade in both merchandise and private services, [646] and reports the major developments in bilateral trade policies and programs during 2018.

European Union

U.S.-EU Trade Overview

The EU as a single entity is the United States’ largest two-way trading partner (i.e., exports plus imports) in terms of both goods and services. The value of U.S. merchandise trade with the 28 member states of the EU increased 12.4 percent, from $717.7 billion in 2017 to $806.4 billion in 2018. The EU share of total U.S. goods trade rose slightly, from 18.6 percent in 2017 to 19.2 percent in 2018. The U.S. merchandise trade deficit with the EU rose by $17.9 billion, from $151.2 billion in 2017 to $169.1 billion in 2018, as U.S. imports grew more than U.S. exports in value terms (figure 6.1).

The EU was the largest market for U.S. merchandise exports in 2018 for the third year in a row, accounting for 19.1 percent of total U.S. exports. U.S. goods exports to the EU increased 12.5 percent, from $283.3 billion in 2017 to $318.6 billion in 2018. Leading U.S. exports to the EU included civilian aircraft, engines, and parts; crude petroleum; medicaments (medicines); refined petroleum products; and nonmonetary gold. Nearly all of the top 15 U.S. goods exports to the EU increased between 2017 and 2018.

The EU remained the second-largest source of U.S. merchandise imports, following China, in 2018. The EU accounted for 19.2 percent of total U.S. goods imports in 2018. U.S. imports from the EU increased 12.3 percent, from $434.5 billion in 2017 to $487.8 billion in 2018. Leading U.S. imports were passenger motor vehicles, medicaments, certain immunological products, light oils, and parts of turbojets and turbopropellers. U.S.-EU merchandise trade data are shown in appendix tables A.27 through A.30.

Source: USITC DataWeb/USDOC (accessed May 17, 2019).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA, U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

U.S. two-way cross-border trade in services with the EU increased 3.4 percent to $450.4 billion in 2018 and accounted for 33.4 percent of total U.S. trade in services that year. The United States continued to register a trade surplus in services with the EU—one that increased from $50.3 billion in 2017 to $53.2 billion in 2018—as U.S. exports grew more than U.S. imports (figure 6.2). The United Kingdom (UK) was the EU’s largest services trader with the United States, with 29.8 percent of the EU total, followed by Germany and France.

U.S. exports of services to the EU increased 3.7 percent ($8.9 billion) to $251.8 billion in 2018, while U.S. imports increased 3.1 percent ($6.0 billion) to $198.6 billion (tables A.31 and A.32). Leading U.S. services exports to the EU included other business services, [647] charges for the use of intellectual property, [648] travel services, and financial services. Leading U.S. services imports from the EU included travel services, other business services, transport, and charges for the use of intellectual property.

Trade Developments

A potential U.S.-EU trade agreement was under discussion beginning in July 2018. These discussions led to the establishment of an Executive Working Group to reduce transatlantic trade barriers, which was one of the primary trade events of the U.S.-EU relationship over the past year. However, attention was also focused on the steel and aluminum tariffs imposed on EU goods by the United States under section 232 of the Trade Expansion Act of 1962, and EU retaliatory measures. Despite their disagreement over the tariffs, the United States and EU—along with Japan—found common ground in looking at nonmarket economic policies of third countries, on which they issued a joint scoping paper outlining possible collective remedial actions. [649] Finally, the EU’s much-discussed General Data Privacy Regulation (GDPR) went into effect in May 2018, in concert with a joint U.S.-EU review of the EU-U.S. Privacy Shield Framework. [650] All of these topics are described below.

EU automotive exports to the United States were also at issue in 2018. On May 23, 2018, USDOC initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automobile parts. [651] The EU submitted written comments to USDOC on June 29, 2018. [652] EU Ambassador David O’Sullivan provided testimony at USDOC’s public hearing on July 19, 2018, stating that EU automotive exports to the United States do not threaten or impair the U.S. auto industry or national security. [653]

In March 2018, the first Joint Committee meeting under the Bilateral Agreement on Prudential Measures regarding Insurance and Reinsurance (the U.S.-EU Covered Agreement) was held to reaffirm commitments made in 2017 concerning continuous review, close coordination, and full and timely implementation of agreement provisions. [654] The UK continued to prepare for an expected exit from the EU (Brexit) [655] by signing a separate U.S.-UK Bilateral Agreement on Prudential Measures Regarding Insurance and Reinsurance in December 2018; this agreement upholds the terms of the U.S.-EU Covered Agreement. [656] Under the framework of the Transatlantic Economic Council, the EU hosted the ninth workshop for small and medium-sized enterprises (SMEs) in Vienna, Austria. This workshop focused on best practices for supporting SME development through dual vocational education programs, technology-assisted financing, cooperative intellectual property protections, and public-private partnerships. [657] Lastly, In March 2018, the EU Commission proposed a directive to establish an interim EU-wide tax on digital services. [658] However, the proposal was abandoned in early 2019 when several member states voiced opposition. By March 2019, four member states (France, Italy, Spain, UK) had separately introduced or proposed introducing a digital services tax bill. [659]

Also during 2018, there was a new development in the long-running dispute on EU measures affecting trade in large civil aircraft, based on a dispute that the United States filed with the World Trade Organization (WTO) in 2004. On May 15, 2018, the WTO compliance panel issued a report confirming that the EU and certain EU member states had failed to comply with the earlier WTO determination that found launch aid to be inconsistent with their WTO obligations (DS316). [660] The outcome of the WTO compliance panel report is described in more detail in chapter 3.

Section 232 Steel and Aluminum Tariffs

On February 16, 2018, under section 232 of the Trade Expansion Act of 1962, the U. S. Department of Commerce (USDOC) released its report finding that imports of steel and aluminum threatened U.S. national security. [661] In response to these findings, the President imposed a 25 percent ad valorem tariff on imported steel from all countries, temporarily excluding Canada and Mexico, and a 10 percent ad valorem tariff on imported aluminum from all countries, also temporarily excluding Canada and Mexico, effective March 23, 2018. [662]

On March 22, 2018, President Trump issued two more proclamations temporarily exempting the EU and certain other countries from the tariffs, as discussions continued with the goal of finding “satisfactory alternative means to address the threatened impairment to the national security.” [663] With respect to the EU, the new proclamations highlighted “our shared commitment to supporting each other in national security concerns; the strong economic and strategic partnership between the United States and the EU, and between the United States and EU member countries; and our shared commitment to addressing global excess capacity in steel [and aluminum] production.” If satisfactory alternative means were not found, these exemptions would last only through May 1, 2018. [664] On April 30, 2018, the President issued two more proclamations, which further exempted the EU, Canada, and Mexico from the tariffs until June 1, 2018. [665]

On May 16, 2018, the EU responded to the proposed imposition of the section 232 steel and aluminum tariffs by issuing a regulation that announced the imposition of additional ad valorem duties on selected U.S. products in two stages. The first stage included ad valorem duties of up to 25 percent on imports from the United States valued at $3.1 billion, including agricultural products, processed food, beverages, tobacco, eye makeup, cotton T-shirts, steel and aluminum products, and more. [666]

On June 1, 2018, the United States imposed the section 232 tariffs on steel and aluminum imports from the EU; on June 20, 2018, the European Commission adopted the regulation imposing retaliatory tariffs, effective June 22. [667] Also on June 1, the EU requested WTO dispute settlement consultations with the United States (DS548) concerning the imposition of the section 232 tariffs. [668] On July 16, 2018, the United States responded by requesting WTO consultations with the EU regarding the EU imposition of retaliatory tariffs (DS559). [669] For more information about these WTO dispute settlement cases, see chapter 3.

The second stage of the two-stage EU response, announced in May 2018, included extra ad valorem duties of 10, 25, 35, and 50 percent on about $3.9 billion worth of U.S. goods, including motor vehicles, cranberries, textile fabrics, footwear, tableware, washing machines, and more. These tariffs are to be applied either starting March 23, 2021, or after the WTO Dispute Settlement Body rules that the “United States’ safeguard measures are inconsistent with the relevant provisions of the WTO Agreement,” if that ruling comes earlier. [670]

In 2017, the last full year before tariffs were imposed, the EU was the largest source of U.S. steel imports, comprising 19.8 percent of all U.S. steel product imports. [671] The EU was also the fifth-largest source for U.S. aluminum imports, comprising 6.6 percent of all U.S. aluminum imports in 2017. [672]

Trade Agreement Negotiations

On July 25, 2018, President Trump and European Commission President Jean-Claude Juncker established a U.S.-EU Executive Working Group to work together to (1) eliminate non-auto industrial tariffs and nontariff barriers; (2) increase trade in several key industries, including services, chemicals, pharmaceuticals, medical products, and soybeans; and (3) work together with other WTO partners on WTO reform to address such issues as industrial subsidies, intellectual property theft, forced technology transfer, overcapacity, and other distortions imposed by state-owned enterprises. [673] The two sides also agreed to launch a dialogue on standards, following up on past work, and to cooperate in the area of energy, in particular to facilitate U.S. exports of liquefied natural gas to the EU. [674]

On October 16, 2018, the Office of the U.S. Trade Representative (USTR) notified Congress of the Administration’s intent to initiate negotiations on a trade agreement with the EU under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. [675] USTR’s letter to Congress set out broad goals of securing higher-paying jobs in the United States, and improving trade and investment opportunities with the EU. In addition to consulting with Congress, USTR solicited comments from the public and held a hearing on December 14, 2018. Using this input, in January 2019, USTR published negotiating objectives for the agreement. [676] For more information, see chapter 5.

Non-market Economic Policy

On May 31, 2018, a trilateral meeting of the U.S., EU, and Japanese trade ministers produced a joint scoping paper on the issue of non-market-oriented policies of third countries that lead to unfair competitive conditions. All parties agreed to “deepen and accelerate” discussions on possible new WTO rules for industrial subsidies and state-owned enterprises, with a view toward future negotiations. The three parties also released two joint statements on cooperating to address forced technology transfer, and on identifying the elements that signal market conditions and the means to maintain these conditions. [677]

The scoping paper defined the basis for developing strong rules on market-distorting industrial subsidies. Specific objectives outlined included improving transparency by incentivizing WTO members to notify the WTO of subsidies granted or maintained. The ministers also recognized the need to better address the market-distorting behavior of public bodies and state-owned enterprises by defining a “public body” and dealing with “state-influenced market-distorting behavior” of entities not defined as public bodies. The paper also suggested ways to improve the effectiveness of subsidy rules, including prohibiting the most harmful subsidies, providing a targeted remedy to address subsidies that contribute to overcapacity, and enhancing information-gathering rules at the WTO. [678]

The group’s first joint statement addressed (1) policies that pressure foreign companies to transfer technology to domestic entities and (2) government-supported “unauthorized intrusion into, and theft from, the computer networks of foreign companies to access their sensitive commercial information and trade secrets and use that information for commercial gain.” Specific objectives outlined in the statement included pinpointing and sharing best practices for stopping governments’ direct and unfair support for systematic investment in—and acquisition of—foreign companies’ assets in order to obtain their technology and intellectual property. The three parties also agreed to work with like-minded partners to stop policies and practices that contribute to forced technology transfer, through the WTO dispute settlement process if necessary. [679]

The second joint statement addressed non-market-oriented policies and practices that lead to overcapacity and uncompetitive markets. The statement affirmed a list of elements that signal market-oriented conditions—including freely determined decisions on prices, costs, inputs, purchases, sales, investments, and capital allocation based on market signals; market-determined prices of capital, labor, and technology; and recognition of international accounting standards, corporation law, bankruptcy law, and private property law—and pledged to add to this list if possible. The parties also agreed to work with other countries on finding ways to maintain market-oriented conditions. [680]

GDPR and the U.S.-EU Privacy Shield

The EU’s General Data Protection Regulation (GDPR), intended to modernize and replace the EU’s 1995 Data Protection Directive, lays out a comprehensive approach to data protection and privacy. [681] It took effect on May 25, 2018. [682] GDPR establishes strict privacy rights for individuals as regards the processing, collection, dissemination, erasure, and portability of their personal data. [683]

The GDPR characteristic that most concerns U.S. companies and trade associations is GDPR’s “extraterritorial jurisdiction”—the fact that it applies outside the EU’s boundaries. [684] Companies that handle personal data of EU data subjects [685] fall under EU legal jurisdiction with respect to obeying GDPR rules regardless of the companies’ physical location. Complying with GDPR adds legal and administrative expenses and raises costs of data storage and processing for affected firms. Moreover, firms that fail to comply with GDPR data protection rules not only may be liable as “controllers” of personal data, but also may be jointly liable with their contractors that are “processers” of those personal data. Violators may be fined up to 4 percent of their annual global firm revenue. [686] Despite widespread concern over the anticipated costs of complying GDPR’s policies, some experts have acknowledged a benefit to the competitiveness of larger digital services companies that have adequate resources to bear the compliance costs of such legislation. [687]

A further concern for U.S. companies is the possible spread of the GDPR approach. Given the large size of the EU market and the breadth of its authority, many countries outside the EU often use EU regulations as a model for their own. This tendency could have the effect of duplicating these stringent data policies in other markets in which U.S. firms operate. [688]

Though GDPR only came into force in 2018, data privacy has long been part of the U.S.-EU economic policy agenda. In fact, 2018 saw the second annual review of the U.S.-EU Privacy Shield framework, which gives companies a mechanism for transferring personal data from the EU to the United States that is consistent with EU law. [689] At the second annual review in Brussels, Belgium, in October 2018, the European Commission concluded that the Privacy Shield framework “continues to provide an adequate level of privacy protection under EU law.” [690] The EU highlighted improvements made by USDOC following the first annual review in 2017, including setting up a system of checks on random firms to ensure compliance, and the verification of public access to firms’ privacy policies online. [691] The EU also reiterated the need for the United States to nominate a permanent ombudsperson to address potential disputes. Despite the overall positive review, the Privacy Shield framework was the subject of cases before the EU General Court and Irish Supreme Court in 2018. [692]

China

U.S.-China Trade Overview

In 2018, China remained the United States’ top single-country trading partner in terms of two-way merchandise trade, accounting for 15.7 percent of total U.S. trade. Total U.S. merchandise trade with China increased 3.9 percent, from $635.4 billion in 2017 to $659.8 billion in 2018. Over the same period, the U.S. merchandise trade deficit with China grew by $43.6 billion in 2018 to $419.2 billion. The growth in the bilateral merchandise trade deficit was attributable to a $9.6 billion decrease in U.S. exports to China, accompanied by a $34.0 billion increase in U.S. imports (figure 6.3).

In 2018, China was the third-largest single-country destination for U.S. merchandise exports, accounting for 7.2 percent of global U.S. merchandise exports. Between 2017 and 2018, U.S. exports of merchandise to China declined 7.4 percent, from $129.9 billion in 2017 to $120.3 billion in 2018. Agricultural exports contributed to the vast majority of this decline, particularly soybeans. Leading U.S. exports to China were civilian aircraft, engines, and parts; passenger motor vehicles; [693] crude petroleum; semiconductors; and soybeans.

China remained the largest source of U.S. merchandise imports in 2018, accounting for 21.2 percent of global U.S. imports. The value of U.S. imports from China increased 6.7 percent in 2018, from $505.5 billion in 2017 to $539.5 billion in 2018. Leading U.S. imports from China were cellphones; portable computers and tablets; telecommunications equipment; and computer parts and accessories. Imports in all of these top four categories rose from 2017 to 2018, with the exception of cellphone imports, which declined 3.1 percent. U.S.-China merchandise trade data are shown in appendix tables A.33–A.36.

China was the United States’ third-largest services trading partner in 2018, with two-way services trade growing by 2.8 percent from $72.9 billion in 2017 to $75.0 billion in 2018. U.S. services exports grew by 2.1 percent to $56.7 billion, while services imports grew by 5.3 percent, reaching $18.3 billion. As a result, the U.S. services trade surplus with China grew by 0.6 percent in 2018, reaching $38.5 billion (figure 6.4).

In 2018, top services exports to China included travel services ($32.1 billion); charges for intellectual property use ($8.5 billion); and transport ($5.3 billion) (table A.37). Travel services is by far the largest of these sectors, comprising 56.5 percent of 2018 U.S. services exports to China. The fastest-growing category of services exports to China in 2018 was maintenance and repair services, growing 20.0 percent since 2017. The top U.S. services imports from China included other business services ($5.4 billion); transport ($5.0 billion); and travel services ($4.5 billion) (table A.38). These three sectors accounted for 82.1 percent of 2018 U.S. services imports from China. The fastest-growing import category, however, was insurance services, growing 63.5 percent since 2017.

Source: USITC DataWeb/USDOC (accessed May 9, 2018).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

Trade Developments

Since China’s accession to the WTO in 2001, the United States has filed 23 WTO disputes against China. Of the 20 WTO disputes China has filed since its accession, 15 have been against the United States. In 2018, the United States filed 2 new WTO disputes against China. The first one was filed on March 23, 2018, following the release of USTR’s Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974 , discussed below . [694] In that dispute, the United States requested consultations with China concerning measures pertaining to the protection of intellectual property rights (IPRs). [695]

In the second dispute, filed on July 16, 2018, the United States requested consultations about China’s imposition of additional duties on imported U.S. products. [696] Developments in these and other WTO disputes during 2018 are described in more detail in chapter 3 and appendix table A.25.

In 2018, high-level U.S.-China official dialogue did not follow the same structure as in the past. Previously, high-level U.S.-China bilateral discussions fell under the umbrella of the U.S.-China Joint Commission on Commerce and Trade, the U.S.-China Strategic Economic Dialogue, the U.S.-China Strategic and Economic Dialogue, [697] and the relatively new U.S.-China Comprehensive Economic Dialogue, which the Trump Administration established in April 2017. But USTR deemed efforts before 2018 to be “largely ineffective,” citing what it viewed as the marginal progress made by each of these groups. [698] As a result, institutions such as the U.S.-China Economic and Security Review Commission noted that high-level institutional bilateral discussions were less structured in 2018, and even called into question the future of such forums. [699]

A series of high-level bilateral consultations took place in May 2018 between U.S. Secretary of the Treasury Steven Mnuchin, U.S. Secretary of Commerce Wilbur L. Ross, U.S. Trade Representative Robert Lighthizer, Chinese State Council Vice Premier Liu He, and other high-ranking Chinese officials. On May 19, 2018, as a result of those discussions, the United States and China released a joint statement of progress regarding a number of bilateral trade issues. [700] According to the statement, both sides agreed to meaningful increases in U.S. agricultural and energy exports to China, the importance of IPR protection, and the need to encourage two-way bilateral investment. [701]

Despite these developments, on May 29, 2018, the United States announced that it planned to proceed with the tariff hikes against China under section 301. [702] In response, China declared those actions to be “clearly contrary to the recent agreement between the two sides,” and said it would not carry out the market-opening efforts it had planned to pursue if threatened by the higher tariffs. [703] After the imposition of tariffs from both sides, as described further below, President Trump and China’s President Xi Jinping met at the G20 conference in Argentina on December 1, 2018. At this meeting, they agreed that the United States would suspend raising the tariff rate from 10 percent to 25 percent on the third tranche of approximately $200 billion worth of Chinese goods. [704] The suspension was aimed at providing the negotiators with more time to find a mutually acceptable solution. [705]

Tariff Escalation

In 2018, the United States implemented a variety of trade measures as trade tensions rose. In particular, it imposed higher tariffs and implemented several related policies, including short-term relief programs for U.S. agriculture and enhanced reviews for Chinese investment (described below). China, too, increased its tariffs on U.S. imports at various periods throughout 2018 in response to U.S. actions, and an increasing number of U.S. companies operating in China have expressed concerns over increased regulatory barriers. [706]

Section 232 Steel and Aluminum Tariffs. On February 16, 2018, under section 232 of the Trade Expansion Act of 1962, USDOC released its report finding that imports of steel and aluminum threatened to impair U.S. national security. [707] In response to these findings, the President imposed a 25 percent ad valorem tariff on imported steel from China and all other countries (except Canada and Mexico) and a 10 percent ad valorem tariff on imported aluminum from China and all other countries (except Canada and Mexico), effective March 23, 2018. [708] In response, China requested dispute settlement consultations with the United States at the WTO on April 5, 2018. [709] In April 2018, China also imposed additional tariffs of 15 to 25 percentage points on selected U.S. exports, including aluminum waste and scrap, pork, fruits and nuts, wine, modified ethanol, ginseng roots, and stainless steel pipes. [710] The United States requested WTO dispute settlement consultations with China on the imposition of these additional duties on July 16, 2018. [711] Dispute Settlement Body panels were established for both WTO disputes on November 21, 2018. [712]

In 2017, the last full year before tariffs were imposed, China was the 10th-largest source of U.S. steel imports, accounting for 3.4 percent of all U.S. steel imports in that year. [713] China was also the 2nd-largest source of U.S. aluminum imports in 2017, accounting for 12.8 percent of all U.S. aluminum imports. [714] Although China was the world’s largest producer of primary aluminum, producing over half the world’s supply in 2017, U.S. aluminum imports from China are shipped mostly in the form of semifinished products such as bars, rods, and wire. [715]

Intellectual Property Rights, Technology Transfer, and Innovation. The United States and China have had longstanding consultations on issues related to IPRs, technology transfer, and innovation, particularly since China’s WTO accession and its acceptance of the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. [716] On August 14, 2017, President Trump issued a memorandum directing USTR to conduct a section 301 investigation to determine whether any of China’s laws, policies, practices, or actions might be unreasonable or discriminatory and might harm American IPRs, innovation, or technology development. [717] USTR initiated a section 301 investigation on August 18, 2017, and issued its report on March 22, 2018. [718] The investigation focused on whether the following practices were unreasonable or discriminatory and whether they burdened or restricted U.S. commerce:

1. China’s use of foreign ownership restrictions

2. China’s regime of technology regulations regarding the terms of licensing of technologies by U.S. companies to Chinese entities

3. China’s facilitation of investment in and acquisition of U.S. companies by Chinese companies

4. China’s support of intrusions and theft from computer networks of U.S. companies [719]

For more information on this investigation and its findings in 2018, see chapter 2.

In 2018, China had various plans and directives in place to revise its laws and regulations protecting IPRs in accordance with TRIPS, and has undertaken broad efforts to reorganize its intellectual property responsibilities among its government agencies. [720] However, USTR continued to find that China’s 2018 IPR protection and enforcement regime presented serious barriers to U.S. exports and investment. [721] Given the scope and scale of its reported IPR infringement activities, China remained on USTR’s Priority Watch List in its 2019 Special 301 Report . [722]

The Special 301 Report did note some positive developments in 2018:

1. As noted above, China reorganized its intellectual property responsibilities among its government agencies. This included China’s creation of a new State Administration for Market Regulation (SAMR) agency aimed at centralizing its government’s enforcement responsibilities over patent and trademark regulation. [723]

2. The Chinese government continued its process of judicial reforms in 2018, establishing a new appellate tribunal within the Supreme People’s Court (SCP), the “SPC IP Court.” [724]

3. China proposed revisions to its existing intellectual property laws and regulations. [725]

Despite these developments in 2018, USTR claimed that China has still not made fundamental structural changes to strengthen its system of intellectual property protection and enforcement, has not fully opened its market to foreign investment, has not allowed the market to play a decisive role in allocating resources, and has not refrained from government interference in private sector decisions about technology transfer. [726]

On March 22, 2018, USTR released its Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974 . [727] Of its main determinations, USTR found that some aspects pertaining to IPR protection could be addressed through the WTO dispute settlement process. [728] On March 23, 2018, USTR filed a request for consultations with China at the WTO to address certain Chinese laws and regulations pertaining to the protection of IPRs that the United States alleges are inconsistent with China’s obligations under the TRIPS Agreement. The WTO Dispute Settlement Body established a panel on November 21, 2018. [729]

Rising Tariffs. Based on the findings of its section 301 investigation, and pursuant to the direction of the President, USTR imposed an additional 25 percent tariff on approximately $50 billion worth of select Chinese imports that were implemented in two different tranches (installments). The first tranche was imposed on an estimated $34 billion of U.S. imports from China (under 818 tariff subheadings) that entered the United States for consumption on or after July 6, 2018, and the second tranche was imposed on an estimated $16 billion of Chinese imports (under 279 tariff subheadings) that entered the United States for consumption on or after August 23, 2018. [730] The top sectors that were subject to tariffs were aerospace, information and communication technology, robotics, and machinery. [731]

Following the imposition of U.S. tariffs on Chinese goods, China imposed what its State Council Tariff Committee considered retaliatory tariffs of 25 percent covering about $50 billion worth of select U.S. imports. [732] These were implemented in two tranches, coinciding with the U.S. July 6, 2018, and August 23, 2018, implementation dates. [733] These tariffs affected U.S. exports to China of various agricultural products (e.g. soybeans) and transportation products (e.g., vehicles, vessels). [734]

On September 24, 2018, President Trump imposed an additional tariff on what the White House estimated to impact approximately $200 billion worth of Chinese imports. [735] Initially set at 10 percent, these tariffs were scheduled to increase to 25 percent by January 1, 2019. [736] In response, China announced that it would raise tariffs on $60 billion in U.S. imports by 5 or 10 percent depending on the product, effective September 24, 2018. [737] After the G20 meeting in November–December 2018, President Trump agreed to keep tariffs at 10 percent on January 1, 2019, and China agreed to temporarily suspend the imposition of tariffs on automotive vehicles and parts. That is, whereas tariffs on these products were originally set to go into effect on January 1, 2019, the Chinese government agreed to suspend them for an additional three months. [738]

Short-Term Agricultural Relief Programs

In response to increases in Chinese tariffs on U.S agricultural exports, the U.S. Department of Agriculture (USDA) authorized $12 billion in programs to help U.S. agricultural producers weather an estimated $11 billion in losses from disrupted markets. According to USDA, U.S. agricultural exports of soybeans, sorghum, livestock products (e.g., milk, pork), and fruits and nuts appear to have been impacted the most in 2018. [739] Moreover, since the U.S. tariffs were imposed, USDA has identified unusually strict and cumbersome Chinese customs entry procedures for U.S. agricultural exports, whose delays have affected the marketability of perishable crops. [740]

To address these issues, USDA initiated three short-term relief programs. The first, called the Market Facilitation Program, provided incremental payments to U.S. soybean, sorghum, corn, wheat, cotton, dairy, and hog producers to help farmers manage the effects of disrupted markets. The second, referred to as the Food Purchase and Distribution Program, purchased unexpected surpluses of affected commodities (e.g., fruits, nuts, legumes, beef, pork, and milk) and redistributed those products to food banks and other charitable programs. Finally, USDA used its Trade Promotion Program to help develop new export markets for U.S. products, which is administered through the Foreign Agricultural Service. The combined cost of those programs was an estimated $12 billion. [741]

Monitoring Foreign Investment in the United States

Increasing concern has been expressed about the U.S. national security implications of Chinese and other countries’ investment in U.S. advanced technology companies. As a result, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) was signed into law with the declared aim of protecting critical American technology and intellectual property from harmful foreign acquisitions. [742] FIRRMA was intended both to modernize the tools used for protecting critical U.S. technology and to strengthen mechanisms already administered by the Committee on Foreign Investment in the United States (CFIUS). [743] FIRRMA has mandated expanded export control measures, requiring a U.S. interagency process to identify and impose controls over the exportation of certain “emerging and foundational technologies.” [744]

As of 2018, FIRRMA (1) expanded the scope of what CFIUS can investigate by redefining terms such as “critical technologies” and adding certain new transactions, including real estate (for properties close to military instillations), to what is reviewable; (2) modified CFIUS’s review procedures to increase scrutiny of investments originating from countries of special concern; and (3) required CFIUS to take specific actions within prescribed deadlines for certain programs and for reporting requirements to various Congressional committees. These 2018 revisions to CFIUS are considered the most comprehensive changes made to the foreign investment review process since 2007. [745] The Administration is now using the expanded CFIUS mandate to address concerns over Chinese state-directed investment in critical technologies. [746]

Canada

U.S.-Canada Trade Overview

In 2018, Canada was the United States’ second-largest single-country trading partner after China, which is the same position it held in 2017. U.S. two-way merchandise trade with Canada grew 6.1 percent to $617 billion in 2018 from $582 billion in 2017, accounting for 14.7 percent of total U.S. merchandise trade with the world. The U.S. merchandise trade deficit with Canada grew 15.8 percent to $19.7 billion in 2018, as U.S. imports rose by $19.1 billion and U.S. exports rose by $16.5 billion (figure 6.5).

In 2018, Canada was the largest single-country export market for U.S. goods, accounting for 18.0 percent of all U.S. merchandise exports to the world. U.S. merchandise exports to Canada increased 5.8 percent from $282.3 billion in 2017 to $298.7 billion in 2018. The top U.S. exports to Canada during 2018 were crude petroleum; civilian aircraft, engines, and parts; motor vehicles—both for passengers and for goods transport—as well as their parts and accessories; and light oils.

In 2018, Canada remained the third-largest single-country import source for the United States, behind China and Mexico. U.S. merchandise imports from Canada grew from $299.3 billion in 2017 to $318.4 billion in 2018, a 6.4 percent increase. The top U.S. imports from Canada during 2018 were crude petroleum; passenger motor vehicles and their parts and accessories; refined petroleum products; natural gas; and coniferous wood and products. U.S.-Canada merchandise trade data are shown in appendix tables A.39–A.42.

Canada remained the second-largest single-country U.S. trading partner in services in 2018, following the United Kingdom. Two-way cross-border services trade grew 9.4 percent from $90.8 billion to $99.3 billion in 2018, accounting for 7.4 percent of total U.S. services trade with the world. U.S. cross-border services exports to Canada increased by $5.8 billion, or 10.1 percent, to $63.6 billion in 2018, while U.S. cross-border services imports from Canada increased by $2.7 billion, or 8.2 percent, to $35.6 billion. As a result, the U.S. surplus in services trade with Canada increased to $28.0 billion from $24.9 billion the year before (figure 6.6).

The United States’ largest services exports in 2018 included travel services ($18.2 billion), other business services ($14.2 billion), and charges for intellectual property use ($8.5 billion) (table A.43). “Other business services” were the fastest-growing services export, increasing by 27.8 percent compared to 2017. Major U.S. services imports from Canada were travel services ($9.2 billion), other business services ($8.8 billion), and transport ($5.5 billion) (table A.44). Imports of charges for intellectual property use ($2.3 billion) was the fastest-growing services import, increasing by 37.5 percent since 2017. In terms of trade balance, the United States produced its largest surpluses in travel services ($9.0 billion) and charges for intellectual property use ($6.2 billion), with deficits in maintenance and repair services ($0.3 billion) and telecommunications, computer, and information services ($0.7 billion).

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

Trade Developments

Much of the U.S.-Canada trade relationship is governed by the North American Free Trade Agreement (NAFTA). In 2018, negotiations to modernize the agreement concluded after one year. On August 27, 2018, the United States and Mexico reached a preliminary agreement in principle and, on September 30, 2018, Canada and the United States reached agreement, along with Mexico. On November 30, 2018, in Buenos Aires, Argentina, on the margins of the G20 meeting, Canada, Mexico, and the United States signed the United States-Mexico-Canada (USMCA) Agreement. [747] For more details about the USMCA, see chapter 5.

Canadian automotive exports to the United States were also at issue in 2018. On May 23, 2018, USDOC initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automobile parts. [748] Canada’s Deputy Ambassador to the United States, Kirsten Hillman, provided testimony at USDOC’s public hearing on July 19, 2018, stating that Canada-U.S. auto trade does not pose a risk to U.S. national security. [749]

In other 2018 developments, Canada joined other countries in requesting WTO dispute settlement consultations with the United States and imposing countermeasures on imports from the United States following the U.S. imposition of tariffs on steel and aluminum products for national security reasons. Also, the United States imposed antidumping and countervailing duties on softwood lumber imports from Canada, and both sides signed a memorandum of understanding on regulatory cooperation. These topics are discussed below.

Section 232 Steel and Aluminum Tariffs

Following investigations into the national security implications of U.S. steel and aluminum imports under section 232 of the Trade Expansion Act of 1962 (section 232), the President imposed a 25 percent ad valorem tariff on imported steel from all countries except Canada and Mexico, and a 10 percent ad valorem tariff on imported aluminum from all other countries except Canada and Mexico, effective March 23, 2018. [750] Canada and Mexico were exempted from the initial imposition of these tariffs for several reasons. These included the two countries’ shared commitments to addressing national security concerns and global excess capacity in steel; the economic integration of the three countries, as well as the physical proximity of the three countries’ industrial bases and the export of U.S. steel articles to Canada and Mexico; and the close relation of U.S. economic welfare to national security. [751] On April 30, 2018, the President issued two more proclamations, which extended the initial tariff exemption deadline of May 1, 2018, for the EU, Canada, and Mexico. [752] This extended exemption expired on June 1, 2018, however, and on that date, the 25 percent tariff on steel imports and the 10 percent tariff on aluminum imports from Canada went into effect. [753]

In response to these tariffs, Canada requested dispute settlement consultations at the WTO on the same day they were imposed. [754] Canada also imposed its own tariffs on imports of steel, aluminum, and other products from the United States in the amount of $12.6 billion on July 1, 2018, deemed by Canada to be equivalent to the 2017 value of Canadian exports affected by the U.S. tariffs. [755] The United States requested WTO dispute settlement consultations with Canada on the imposition of these additional duties on July 16, 2018, and a Dispute Settlement Body (DSB) panel was established. [756] DSB panels were established for both WTO disputes on November 21, 2018. [757]

In 2017, the last full year before tariffs were imposed, Canada was the largest single-country source of U.S. steel imports, comprising 17.7 percent of all U.S. steel product imports. [758] Canada was also the largest source for U.S. aluminum imports, which comprised 38.5 percent of all U.S. aluminum imports. [759]

Softwood Lumber

The United States-Canada Softwood Lumber Agreement (SLA) was signed on October 12, 2006. In it, Canada agreed to apply certain export charges and volume limits on its exports of softwood lumber to the United States when the price of such products falls below certain thresholds. Following several extensions, the 2006 SLA officially expired on October 12, 2015, and entered a one-year grace period when no trade remedy petition was permitted, to allow for renegotiation of a new agreement. After the grace period expired on November 25, 2016, the U.S. lumber industry petitioned the Commission and USDOC for trade remedy investigations on imports of softwood lumber from Canada. [760]

On November 8, 2017, USDOC published its final affirmative determinations in antidumping and countervailing duty investigations on softwood lumber from Canada, and on December 7, 2017, USITC found that imports of softwood lumber from Canada had caused material injury to U.S. softwood lumber producers. [761] On January 3, 2018, USDOC amended its final affirmative determinations and issued antidumping (AD) and countervailing duty (CVD) orders on softwood lumber imports from Canada. [762]

Subsequently Canada requested panel reviews of the USDOC and Commission determinations in November and December 2017 and on January 19, 2018, under chapter 19 of the NAFTA. [763] Canada also filed disputes under the WTO Dispute Settlement Understanding against the United States regarding U.S. softwood lumber AD and CVD measures on November 28, 2017. After consultations failed to resolve the disputes, Canada requested the establishment of panels, and the WTO DSB established panels in both disputes on April 9, 2018. ^[764] During 2018, the United States and Canada did not engage in negotiations toward a new softwood lumber agreement.

Canada-United States Regulatory Cooperation Council

On June 4, 2018, U.S. and Canadian officials signed a memorandum of understanding regarding the Canada-United States Regulatory Cooperation Council (RCC). [765] The memorandum reaffirmed the principles and commitments of the RCC to deepen regulatory cooperation and reduce, eliminate, or prevent unnecessary regulatory differences between the two countries. The memorandum further stated that it looks to promote economic growth, innovation, competitiveness, and job creation through the elimination of unnecessary regulatory differences. [766]

In the memorandum, the two sides set out their understanding as to how the RCC participants would continue to operate as co-chairs of the RCC’s governing council so as to provide strategic direction on regulatory cooperation. This includes actions such as setting priorities and objectives to focus on closer alignment of existing regulatory systems at the federal level; ensuring that regulatory outcomes protect consumers, health, safety, security, and the environment; and ensuring that cooperation initiatives do not unnecessarily duplicate the mandates of existing agencies and departments. The memorandum includes an annex that sets out the RCC’s objectives, principles, and mandate. The annex also includes sections addressing regulatory cooperation, including guidance in identifying sectors for increased alignment; expression of a shared commitment to good regulatory practices; and information about RCC membership, the RCC Secretariat, RCC meetings, roles in support of the RCC, and stakeholder engagement. [767]

Wine, Beer, and Spirits

According to USTR, market access barriers in several Canadian provinces have hampered exports of U.S. wine and spirits to Canada for many years. [768] Among these were measures governing the sale of wine in grocery stores maintained by the provincial liquor board in British Columbia that appear to provide advantages to British Columbian wine through an exclusive retail sales channel not available to imported wines. [769] Consequently, the United States requested WTO dispute-settlement consultations with Canada in two disputes. Its first dispute requested consultations on January 18, 2017; [770] its second, on September 28, 2017. [771] A panel was established on July 20, 2018, in the latter dispute. [772]

In an exchange of letters between Canadian Minister of Foreign Affairs Chrystia Freeland and USTR Lighthizer on November 30, 2018, Canada committed to ensure that British Columbia would stop its practice of allowing only local wines to be stocked in supermarkets, addressing the U.S. dispute in the WTO disputes, by no later than November 1, 2019. In exchange, the United States agreed to take no further action at the WTO before this date. [773]

Mexico

U.S.-Mexico Trade Overview

In 2018, Mexico remained the United States’ third-largest single-country merchandise trading partner, following China and Canada. Merchandise trade between the two countries increased by 9.7 percent to $611.5 billion in 2018, accounting for 14.5 percent of U.S. trade with the world. While both imports and exports increased in 2018, the U.S. merchandise trade deficit with Mexico rose by $10.6 billion to $81.5 billion, since U.S. imports from Mexico increased more than U.S. exports (figure 6.7).

Mexico remained the United States’ second-largest single-country export market after Canada in 2018, accounting for 15.9 percent of total U.S. exports to the world. U.S. merchandise exports to Mexico totaled $265.0 billion, an increase of 8.9 percent from 2017. In 2018, leading U.S. exports to Mexico included light oils, refined petroleum products, computer parts and accessories, internal combustion diesel engines, semiconductors, parts and accessories of bodies (including cabs) for motor vehicles, and civilian aircraft, engines, and parts. The increase in the value of exports from 2017 to 2018 appears to have been driven largely by increased exports of oil and petroleum products.

Mexico was the United States’ second-largest single-country import source in 2018 after China, accounting for 13.6 percent of U.S. total imports. In 2018, U.S. merchandise imports from Mexico increased by 10.3 percent to $346.5 billion, driven mainly by the increased value of U.S. imports of computers and crude petroleum. Leading U.S. imports from Mexico included passenger motor vehicles, computers, crude petroleum, telecommunications equipment, road tractors for semitrailers, color TV reception apparatus, and insulated ignition wiring sets. U.S.-Mexico merchandise trade data are shown in appendix tables A.45 through A.48.

In 2018, the U.S. cross-border trade surplus in services with Mexico increased by 14.3 percent to $7.7 billion, largely as a result of growing U.S. services exports (figure 6.8). U.S. exports of services to Mexico rose 4.0 percent ($1.3 billion) to $33.4 billion in 2018, whereas U.S. services imports from Mexico rose 1.2 percent to $25.7 billion. Mexico continued to be the United States’ sixth-largest single-country trading partner for services in 2018, after the UK, Canada, China, Japan, and Germany.

In 2018, leading U.S. services exports to Mexico included travel services, transport, and charges for intellectual property use (table A.49). Leading U.S. services imports from Mexico included travel services; transport; other business services; and telecommunications, computer, and information services (table A.50). Travel services was the largest services category for both imports and exports, accounting for 67.7 percent and 53.6 percent of U.S. imports and exports of services, respectively, in 2018.

Source: USITC DataWeb/USDOC (accessed May 28, 2019).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

Trade Developments

Most of the U.S.-Mexico trade relationship is governed by NAFTA, which came into force January 1, 1994. On August 16, 2017, negotiations between the United States, Canada, and Mexico to modernize NAFTA started in Washington, DC. On November 30, 2018, the United States, Canada, and Mexico signed the United States-Mexico-Canada Agreement (USMCA). These negotiations are described in chapter 5.

Mexican automotive exports to the United States were also at issue in 2018. On May 23, 2018, USDOC initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automobile parts. [774] The Mexican Ambassador to the United States, Gerónimo Gutiérrez Fernández, provided testimony at USDOC’s public hearing on July 19, 2018, stating that U.S. imports of vehicles and auto parts from Mexico do not threaten U.S. national security. [775]

The following section describes major U.S.-Mexico trade developments in 2018, including U.S. government tariffs on aluminum and steel imports from Mexico, work to modernize U.S.-Mexico border crossings, and recent results related to NAFTA’s cross-border trucking provisions. In a long-running WTO dispute involving Mexico’s complaint about U.S. dolphin-safe labeling provisions for tuna and tuna products, the WTO DSB issued a report on compliance proceedings in 2018, bringing the case to an end. [776] The Appellate Body report upheld all aspects of the previous panels’ legal and factual analysis that Mexico appealed—in particular the panels’ findings that the dolphin-safe labeling measure was not inconsistent with U.S. WTO obligations. This dispute is described in more detail in chapter 3.

Section 232 Steel and Aluminum Tariffs

Following investigations into the national security implications of U.S. steel and aluminum imports under section 232 of the Trade Expansion Act of 1962, the White House imposed a 25 percent ad valorem tariff on imported steel from all countries except Canada and Mexico, and a 10 percent ad valorem tariff on imported aluminum from all other countries except Canada and Mexico, effective March 23, 2018. [777] As noted earlier, Canada and Mexico were exempted from the initial imposition of these tariffs because of shared commitments to addressing national security concerns and global excess capacity in steel; the economic integration of the three countries; the physical proximity of the three countries’ industrial bases; the export of U.S. steel articles to Canada and Mexico; and the close relation of U.S. economic welfare to national security. [778] On April 30, 2018, the President issued two more proclamations, which extended the initial tariff exemption deadline of May 1, 2018, for the EU, Canada, and Mexico. [779] This extended exemption expired on June 1, 2018, however, and on that date, the 25 percent tariff on steel imports and the 10 percent tariff on aluminum imports from Mexico went into effect. [780]

In response to the tariffs, on June 5, 2018, the Mexican government suspended NAFTA preferential duty rates on U.S. products classified under 71 subheadings of the international Harmonized System (HS) of tariff classification, 50 of which correspond to various steel products. Retaliatory tariffs imposed by Mexico range up to 25 percent, and included agricultural and food products, as well as steel and aluminum. [781]

At the same time, Mexico challenged the U.S. measures by filing a dispute under the WTO dispute settlement provisions. On June 5, 2018, Mexico requested consultations with the United States on certain measures imposed by the United States, allegedly to adjust imports of steel and aluminum into the United States. [782] Mexico claimed that the measures appear to be inconsistent with WTO obligations. [783] On July 16, 2018, the United States requested WTO dispute settlement consultations with Mexico on the imposition of the additional duties, and a panel was established. [784]

In 2017, the last full year before tariffs were imposed, Mexico was the third-largest single-country source of U.S. steel product imports, supplying 8.6 percent of all U.S. steel product imports. [785] Mexico was the seventh-largest source for U.S. aluminum imports in 2017, supplying 2.8 percent of all U.S. aluminum imports. [786]

Modern Borders

In 2018, the United States and Mexico continued to make progress on cross-border improvements. In April 2017, officials of U.S. Customs and Border Protection and Mexico’s Tax Administration Service (SAT) met in Mexico City to advance the development of customs practices in both the United States and Mexico. [787] Their intent was to enhance bilateral work in trade and travel facilitation; continue to cooperate on innovative approaches to cargo inspection for faster goods flow; and improve the efficiency of their customs processes to manage risk and to reduce processing times and transactional costs. [788] To improve cargo inspection, a pilot program known as Unified Cargo Processing was put into action. [789] The U.S. Department of Homeland Security regarded the pilot as successful; upon its implementation at the Mariposa port of entry in Nogales, Arizona, in July 2016, wait times were significantly reduced for both U.S. and Mexican businesses. [790]

Due to its success in Nogales, the Unified Cargo Processing pilot program was expanded to include the Otay Mesa Cargo Facility in San Diego County, California. In an announcement on September 20, 2017, the U.S. Department of Homeland Security introduced the program’s aims of ending separate inspections and reducing wait times at the border. [791] In 2018, the U.S. General Services Administration (GSA) continued to modernize and expand the facility by doubling the number of pedestrian processing facilities from 6 to 12 lanes to accommodate a new transit hub. [792]

Recent GSA efforts to modernize ports of entry include the Calexico Land Port of Entry, which was built in 1974 and is the main border crossing linking the Imperial Valley agricultural industry to the Mexican state of Baja California. In 2018, GSA completed phase 1 of the facility’s modernization and expansion plan. This phase involved the creation of new pedestrian and privately owned vehicle inspection facilities and the expansion of the port’s facility for commercial inspections. This first phase of the project, which included 10 new northbound vehicle-processing lanes, opened in September 2018. [793]

Cross-Border Trucking between the United States and Mexico

Chapter 12 of NAFTA states that Mexican trucks are to be allowed to provide cross-border truck services throughout the United States beginning in 2000. However, the beginning of such services was delayed because of U.S. safety concerns. To address these concerns, the U.S. Department of Transportation and the Federal Motor Carrier Safety Administration (FMCSA) launched the U.S.-Mexico Cross-Border Long-Haul Trucking Pilot Program on October 14, 2011. [794] The pilot program concluded on October 10, 2014. [795] On January 15, 2015, FMCSA began accepting applications from Mexico-domiciled motor carriers interested in conducting long-haul operations beyond the U.S. commercial zones. [796]

In 2018, reports from FMCSA indicated that motor carriers that were either owned by Mexicans or domiciled in Mexico continued to operate safely on U.S. roads. If enacted, the United States-Mexico-Canada Agreement would enable the United States to restrict the number of authorizations of Mexican-domiciled carriers to provide cross-border long-haul truck services into the United States in the event of “material harm” to U.S. trucking suppliers, operators, and drivers. [797]

Japan

U.S.-Japan Trade Overview

In 2018, Japan remained the United States’ fourth-largest single-country trading partner in terms of two- way trade, accounting for 5.2 percent of total U.S. merchandise trade. U.S. merchandise trade with Japan increased 6.6 percent, from $204.1 billion in 2017 to $217.6 billion in 2018. At the same time, the U.S. merchandise trade deficit with Japan declined by $1.2 billion in 2018 to $67.6 billion. The decrease in the bilateral merchandise trade deficit was attributable to a $7.4 billion increase in U.S. exports to Japan and a corresponding $6.1 billion increase in U.S. imports from Japan (figure 6.9).

Japan remained the fourth-largest destination for U.S. merchandise exports in 2018, accounting for 4.5 percent of global U.S. exports. Between 2017 and 2018, U.S. exports to Japan increased 10.9 percent, from $67.6 billion in 2017 to $75.0 billion in 2018. Leading U.S. exports to Japan were civilian aircraft, engines, and parts; liquefied propane; corn; semiconductor manufacturing machines; and medicaments.

Japan remained the fourth-largest source of U.S. merchandise imports in 2018, accounting for 5.6 percent of global U.S. imports. The value of U.S. imports from Japan increased 4.5 percent in 2018, from $136.5 billion in 2017 to $142.6 billion in 2018. Leading U.S. imports from Japan were passenger motor vehicles, parts for airplanes or helicopters, motor vehicle gearboxes, and parts for printers. U.S.-Japan merchandise trade data are shown in appendix tables A.51–A.54.

Japan remained the United States’ fourth-largest single-country services trading partner in 2018, representing $74.8 billion, or 5.5 percent of U.S. services trade. U.S. cross-border services exports to Japan fell by $0.8 billion, or 1.8 percent, to $44.4 billion in 2018, while U.S. cross-border services imports from Japan increased by $1.4 billion, or 4.8 percent, to $30.4 billion. As a result, the U.S. surplus in services trade with Japan declined to $14.0 billion from $16.2 billion the year before (figure 6.10).

The United States’ largest services exports in 2018 included travel services ($10.3 billion), transport ($9.8 billion), and other business services ($7.7 billion) (table A.55). Maintenance and repair services ($1.5 billion) made up the fastest-growing service export, increasing by 17.3 percent compared to 2017. Major U.S. services imports from Japan were charges for intellectual property use ($11.8 billion), transport ($9.2 billion), and government goods and services ($4.3 billion) (table A.56). Imports of financial services ($1.6 billion) increased by 15.8 percent in 2018. In terms of two-way trade, the United States produced its largest surpluses in travel services ($6.7 billion) and other business services ($4.2 billion), with deficits in charges for intellectual property use ($5.2 billion) and government goods and services ($3.6 billion).

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

Trade Developments

In 2017, the United States withdrew from the Trans-Pacific Partnership [798] —a proposed free trade agreement among 12 Asia/Pacific countries, including the United States and Japan.

Japanese automotive exports to the United States were at issue in 2018. On May 23, 2018, USDOC initiated an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automobile parts. [799] Kazutoshi Aikawa, a representative of the Government of Japan, provided testimony at USDOC’s public hearing on July 19, 2018. In his testimony, Mr. Aikawa stated that Japanese automotive exports to the United States do not threaten or impair the U.S. auto industry or national security. [800]

President Trump and Prime Minister Shinzo Abe of Japan agreed to initiate bilateral negotiations for a U.S.-Japan Trade Agreement in September 2018. In a joint statement, the two sides agreed to start negotiations towards an agreement on goods and services “that can produce early achievements.” After these discussions have been completed, they agreed that the two countries will tackle other trade and investment topics. Both leaders agreed to respect the positions of the other with respect to desired outcomes, as follows: for the United States, “market access outcomes in the motor vehicle sector” will increase U.S. motor vehicle production and jobs; and for Japan, “with regard to agricultural, forestry, and fishery products, outcomes related to market access as reflected in Japan’s previous economic partnership agreements constitute the maximum level.” ^[801]

In October, USTR officially notified Congress of the Administration’s intent to initiate negotiations on a trade agreement with Japan. [802] After notifying Congress, USTR published a notice in the Federal Register seeking public comment and announcing it would hold a public hearing in December 2018 on the proposed U.S.-Japan trade agreement. ^[803] Following the public hearing, USTR published its negotiating objectives in December 2018. ^[804] In this document, USTR noted that it may seek to pursue negotiations with Japan in stages, which would be different from past U.S. trade negotiations, which involved one comprehensive negotiation. ^[805]

In 2018, the United States and Japan coordinated efforts to address trade issues of common interest. For example, the United States and Japan, along with the EU, held trilateral meetings in 2018 to discuss policy measures to address nonmarket economic issues including global excess capacity and forced technology transfer. [806] The third meeting of the U.S.-Japan Economic Dialogue was convened in Tokyo in November 2018, with discussions focusing on expanding further trade and investment between Japan and the United States. [807] Additionally, the United States and Japan worked to advance issues related to digital trade within the Asia-Pacific Economic Cooperation and WTO. [808] Furthermore, several trade developments related to agricultural products, passenger motor vehicles, and pharmaceuticals occurred between Japan and the United States in 2018.

Section 232 Steel and Aluminum Tariffs

Following investigations into the national security implications of U.S. steel and aluminum imports under section 232 of the Trade Expansion Act of 1962, the President imposed a 25 percent ad valorem tariff on imported steel from all countries except Canada and Mexico, and a 10 percent ad valorem tariff on imported aluminum from all other countries except Canada and Mexico, effective March 23, 2018. ^[809] Japan was among the countries affected by these tariffs on steel and aluminum. In response to the new U.S. tariffs, on May 18, 2018, Japan notified the WTO of its intent to impose retaliatory tariffs on U.S. products. [810] However, Japan did not initiate WTO proceedings or impose retaliatory tariffs in 2018.

In 2017, Japan was the sixth-largest single-country source of U.S. steel imports, supplying 5.7 percent of all U.S. steel product imports. [811] Japan was also the 15th-largest source of U.S. aluminum imports, supplying 1.0 percent of all U.S. aluminum imports. [812]

Agricultural Products

Historically, Japan has served as a top export market for U.S. agricultural products. In 2018, Japan maintained its status as the third-largest single-country market for U.S. agricultural goods. [813] U.S. agricultural exports to Japan increased by 8.4 percent, totaling $12.9 billion in 2018. [814] Recent U.S.-Japan agricultural trade developments include a reduction in Japan’s safeguard tariff on imports of frozen beef and the reopening of the Japanese market to U.S. lamb and goat meat exports.

Japan’s 2018 tariff reduction followed a tariff increase the year before. In August 2017, Japan increased its duty on imports of frozen beef from 38.5 percent to 50 percent after imports exceeded the volume level established by Japan’s special safeguard (SSG) measure. Frozen beef exporters in countries with economic partnership agreements (EPAs) with Japan were exempted from the safeguard tariff and able to export frozen beef below the SSG rate. At the beginning of the Japanese fiscal year in April 2018, Japan reset its safeguard mechanism and reduced its tariff on frozen beef imports back to 38.5 percent. However, the Japanese government has announced its intention to maintain its volume-triggered safeguard mechanism for countries without an EPA, including the United States. [815] In 2018, Japan was the third-largest destination for U.S. frozen beef exports, totaling $560 million. [816]

In addition to reducing the tariff on frozen beef to pre-safeguard levels, Japan reopened its market to U.S. sheep and goat meat exports in July 2018, following working-level meetings of the U.S.-Japan Economic Dialogue. [817] Japan had banned U.S. exports of sheep and goat for more than 14 years after bovine spongiform encephalopathy (popularly known as “mad cow disease”) was detected in the United States in 2003. In 2018, Japan imported $200.9 million in sheep and goat meat, with 97 percent of imports originating from Australia and New Zealand. [818] U.S. exports of sheep and goat meat totaled $352,600, representing less than 0.002 percent of Japan’s total imports of these meats. [819]

Several market access issues continued to affect U.S. agricultural exports to Japan in 2018. For example, in 2017, Japan’s Consumer Affairs Agency expanded its requirements for country of origin labeling (COOL) to include main ingredients in processed foods manufactured in Japan. Although the new requirements were subject to a transition period ending in 2022, the United States raised concerns with Japan in 2018 that new COOL requirements may adversely affect U.S. exports of food ingredients to Japan. [820] Japan also continues to operate a tariff-rate quota (TRQ) of 682,200 metric tons for imported rice. USTR maintains that Japan’s rice TRQ inhibits U.S. rice producers from accessing final consumers in Japan. [821] USTR has also identified Japan’s state-operated wheat import system and its “gate price mechanism” for pork as ongoing barriers to U.S. agricultural exports. [822]

Passenger Motor Vehicles

Passenger motor vehicles make up a significant share of two-way trade between Japan and the United States. In 2018, the United States exported $623.0 million worth of passenger motor vehicles to Japan while importing $40.4 billion. The United States has consistently experienced large deficits in passenger motor vehicle trade with Japan, reaching $39.8 billion in 2018. [823] Although Japan has no auto tariffs, U.S. industry says there are significant nontariff barriers which serve as a barrier to market access for U.S. passenger motor vehicle producers. [824] These barriers include standards and testing protocols that are unique to the Japanese market, a lack of transparency about the process of developing Japanese regulations, and policies that hinder the development of distribution and service networks for U.S. passenger motor vehicles in Japan. [825]

USTR has identified improving market access opportunities in Japan’s automotive sector as a key objective for a trade agreement with Japan. As part of its list of negotiating objectives released in December 2018, USTR has announced intentions to negotiate “securing additional provisions as necessary to obtain fair and more equitable trade in the motor vehicle sector.” [826]

Pharmaceutical Products

Introduced in 2010, Japan’s Price Maintenance Premium is a program designed to accelerate the introduction of innovative drugs to the Japanese market. [827] In 2018, the government of Japan introduced reforms altering the requirements for drug producers to qualify for the premium. USTR has cited these changes as a potential trade barrier for U.S. pharmaceutical companies. New requirements for local clinical trials and product launches appear to favor Japanese companies while excluding small and medium-sized U.S. pharmaceutical companies from receiving the premium. [828] According to the most recent data from Japan’s Ministry of Health, Labour, and Welfare, U.S.-origin pharmaceuticals made up 20 percent of Japan’s $95 billion pharmaceutical market. However, changes to the pricing system are expected to negatively affect the growth of Japan’s pharmaceutical market. [829]

Republic of Korea (South Korea)

U.S.-South Korea Trade Overview

South Korea continued to be the United States’ sixth-largest single-country merchandise trading partner in 2018. Two-way merchandise trade was valued at $130.6 billion, up from $119.8 billion in 2017. The share of U.S. trade with South Korea remained unchanged from previous years, at 3.1 percent of U.S. trade with the world. The United States recorded a trade deficit of $17.9 billion with South Korea in 2018, a 22.6 percent decrease from the $23.1 billion deficit in 2017, as U.S. exports to South Korea increased by $8.0 billion and U.S. imports from South Korea increased by $2.8 billion (figure 6.11). The U.S. combined goods and services trade deficit with South Korea has decreased for the third year in a row, reaching $5.4 billion in 2018. This is the same value as the trade deficit in 2011, the year before the U.S.-Korea Free Trade Agreement (KORUS) entered into force. [830]

U.S. merchandise exports to South Korea were valued at $56.3 billion in 2018, up 16.6 percent from 2017. Leading U.S. exports to South Korea were crude petroleum; machines for the manufacture of semiconductor devices or electronic integrated circuits; civilian aircraft, engines, and parts; semiconductors; liquefied propane; and corn. Crude petroleum was among the top U.S. exports to South Korea for the second year in a row; it was also the fastest growing, spiking 410.4 percent in value from $1.1 billion in 2017 to $5.6 billion in 2018. [831] Beef exports represented the fifth-largest U.S. export to South Korea, with a total value of $1.7 billion in 2018, up 43.6 percent from $1.2 billion in 2017. [832] South Korea is the second-largest export market for U.S. beef after Japan, accounting for about 21.2 percent of U.S. beef exports in 2018. Passenger motor vehicles were another top export to South Korea in 2018, growing from $1.5 billion in 2017 to $1.7 billion in 2018. [833] Exports of all passenger motor vehicles combined are the United States’ sixth-largest export to South Korea.

U.S. merchandise imports from South Korea totaled $74.2 billion in 2018, increasing 3.9 percent ($2.7 billion) from 2017. U.S. imports of passenger motor vehicles, the top import from South Korea, declined to $13.8 billion in 2018, down $1.9 billion (12.1 percent) from 2017. Other top U.S. imports from South Korea included computer parts and accessories, cellphones, refined petroleum products, and immunological products. U.S.-South Korea merchandise trade data are shown in appendix tables A.57–A.60.

In 2018, South Korea was the United States’ ninth-largest single-country services trading partner in terms of two-way trade. U.S. cross-border services exports to South Korea decreased 6.7 percent in 2018 to $21.9 billion. U.S. cross-border services imports from South Korea increased in 2018, by 7.0 percent, to reach $9.9 billion. As a result, the U.S. services trade surplus with South Korea fell from $14.3 billion in 2017 to $12.0 billion in 2018, a decline of 15.6 percent (figure 6.12).

In 2018, leading U.S. services exports to South Korea included travel services ($9.4 billion), charges for intellectual property use ($5.0 billion), transport ($2.7 billion), and other business services ($1.6 billion) (table A.61). All four of these services exports categories experienced declines from 2017. Leading U.S. services imports from South Korea include transport ($6.5 billion), travel services ($1.5 billion), and other business services ($956 million) (table A.62). Both transport and travel services exports increased from 2017 to 2018, by 7.4 and 16.4 percent, respectively.

Source: USITC DataWeb/USDOC (accessed May 9, 2019).

Note: Underlying data can be found in appendix table B.5 .

Source: USDOC, BEA U.S. International Transactions, Services, & IIP, International Transactions, International Services, tables 2.2 and 2.3, and International Transactions, table 3.2, June 20, 2019.

Note: Data for 2018 are preliminary. Underlying data can be found in appendix table B.7 .

Trade Developments

Several high-level meetings on issues of bilateral trade between the United States and South Korea took place in 2018. Most notably, President Trump and South Korean President Moon Jae-in met on September 24, 2018, in New York to sign the modifications to the KORUS agreement. [834] This followed two other meetings in Washington, DC, one between U.S. Trade Representative Lighthizer and Trade Minister Kim Hyun-chong on July 31, 2018, and the other between U.S. House Committee Foreign Affairs Chairman Ed Royce and South Korean Minister of Trade, Industry, and Energy Paik Ungyu on July 1, 2018. At both meetings, South Korea expressed views on why South Korean automobile exports should be exempt from potential tariffs under section 232 of the U.S. Trade Expansion Act. [835] On July 19, 2018, the South Korean Deputy Minister for Trade, Kang Sung-Cheon, also provided similar testimony at USDOC’s hearing on the section 232 investigation of automotive imports. [836] At the end of 2018, this section 232 investigation was still in progress. [837]

Three different WTO disputes involving the United States and South Korea were active in 2018. Two of these disputes were in response to the safeguard actions that the United States took in response to imports of large residential washers (DS546) and of crystalline silicon photovoltaic products (DS545). [838] Panels were established for both disputes on September 26, 2018, but neither had been composed as of yearend 2018. [839] In the third active 2018 WTO dispute, South Korea requested consultations with the United States on February 14, 2018, in a dispute concerning several issues related to U.S. antidumping and countervailing duty measures across two countervailing duty proceedings and six antidumping proceedings (DS539). A panel was established by the Dispute Settlement Body on May 28, 2018, and was composed on December 5, 2018. However, no further actions have been taken since then. [840] On June 4, 2018, the USDOC concluded its section 129 investigation on large residential washers from South Korea, revising its final countervailing duty analysis in accordance with WTO Dispute Settlement Panel and Appellate Body Panel reports. [841] For more information on these WTO disputes, see chapter 3.

Section 232 Steel and Aluminum Tariffs

Following investigations into the national security implications of U.S. steel and aluminum imports under section 232 of the Trade Expansion Act of 1962, the President imposed a 25 percent ad valorem tariff on imported steel from all countries except Canada and Mexico, and a 10 percent ad valorem tariff on imported aluminum from all other countries except Canada and Mexico, effective March 23, 2018. [842] Through negotiations that took place alongside those involving KORUS (see below), South Korea received an exemption for its steel products before the tariff took effect, while discussions on a satisfactory alternative solution to addressing the threatened impairment to U.S. national security by steel imports from South Korea continued. [843] At the conclusion of these discussions, South Korea agreed to an absolute annual quota for its exports of 54 subcategories of steel to the United States. The quota was effective on May 1, 2018, and is equivalent to 70 percent of the United States’ average import volume of steel from South Korea from 2015–17. [844] On May 31, 2018, the quota was modified to be measured on a quarterly basis, effective July 1, 2018. [845]

South Korea was the second-largest single-country source for U.S. imports of steel in 2017 behind Canada, supplying 9.6 percent of U.S. steel imports. [846] South Korea is a less important source of U.S. imports of aluminum; in 2017 it was the 20th-largest single-country supplier of aluminum to the United States. [847] The 10 percent tariff on U.S. imports of aluminum from South Korea is still in effect as of August 2019.

U.S.-Korea FTA

The process to renegotiate KORUS began with a formal notification to South Korea from USTR Lighthizer on July 12, 2017, calling for a special session of the KORUS Joint Committee. Two special sessions were convened in 2017: one on August 22 in Seoul, and one on October 4 in Washington, DC. [848] Negotiations for KORUS began on January 5, 2018. [849] Following a series of ministerial-level talks throughout the spring and summer of 2018, the agreement was signed by South Korea and the United States on September 24, 2018. The KORUS modifications entered into force on January 1, 2019. [850] For more information on KORUS negotiations, see chapter 5.

Bilateral developments under the KORUS agreement have continued into 2019. On March 15, 2019, USTR requested its first-ever consultations with South Korea under KORUS Chapter 16 on Competition-Related Matters. In its request, the United States expressed its concerns over competition hearings held by the Korea Fair Trade Commission (KFTC). [851] With a mandate that includes promoting competition and strengthening consumers’ rights, KFTC can conduct investigations of companies and levy fines for violations and failure to cooperate with investigators. Several U.S. firms have raised concerns that KFTC’s procedures do not comply with South Korea’s obligations under KORUS. According to these firms, KFTC’s procedures inhibit the ability of companies to adequately defend themselves during proceedings and hearings by denying them the opportunity to review and rebut the evidence against them. [852]