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Sept.4, 2017

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CUSTOMS UPDATE 38 THE JOURNAL OF COMMERCE SEPTEMBER 4.2017 Susan Kohn Ross NEARLY SEVEN MONTHS into Don- ald Trump's presidency, it's still not clear what the administration's trade policy is. The general press is rife with stories about the warring factions within the administration, those who want to turn inward and those who view issues through a global prism. So far, there are only a handful of tangible signals to point to: the withdrawal from the Trans- Pacific Partnership; notifying the US Congress, Mexico, and Canada to renegotiate the North American Free Trade Agreement; withdrawal from the Paris Climate Accord; and the Aug. 12 US-led passage ( jointly with China and Russia) of additional sanctions against North Korea, and subsequent ratcheting up of rhetoric about nuclear attacks and counterattacks. This is too small a sample to be able to reliably read the tea leaves, even if you include the proposed cut in budget and redirection for the Department of Commerce, and the proposed cut in budget and staff at the State Department. The UN sanctions against North Korea wouldn't have been possible if China and Russia did not view further action in their own self-interest. Typi- cally, one or the other country vetoes US action with which it disagrees. Resolution 2371 (2017) targets the main exports giving hard currency to North Korea, including seafood, lead ore, coal, iron, iron ore, and lead. The resolution also calls on mem- ber countries to suspend issuing work permits to North Korean work- ers. Given the efforts of the North Korean regime to build nuclear capa- bility, this vote focused not only on national security but also world secu- rity. It can't be seen as a harbinger of Trump's trade policy, except when viewed as building on the recently enacted "Countering America's Adversaries Through Sanctions Act," but that bill was passed in the House and Senate by a veto-proof majority. It enhances the sanctions imposed on Russia, Iran, and North Korea, but does so in a way that makes trade with China more challenging. Companies will need to upgrade their compliance programs to root out any North Korean-origin inputs in US imports from China, as well as resales by Chinese companies to North Korean buyers of US exports. Because of the international nature of these latest sanctions, the onus regarding North Korea applies equally to all countries, but that doesn't make it any easier for US com- panies to conduct their due diligence. The UN website indicates the resolution also prohibits the opening of new joint ventures or cooperative entities or the expan- sion of existing joint v e n t u r e s t h r o u g h additional investments unless approved by the UN. Included in the res- olution is a requirement to identify any vessels involved in evading prior UN sanctions. The United Nations also encour- aged a resumption of the six-party talks involving China, Japan, South Korea, Russia, North Korea, and the US, aimed at "a verifiable and peace- ful denuclearization of the Korean Peninsula." In an Aug. 1 Wall Street Journal opinion column, Commerce Sec- retary Wilbur Ross took issue with those who say the Trump adminis- tration's approach is protectionist. Specifically mentioned were the actions of China and the European Union regarding tariff and nontar- iff barriers. Although admitting the trading rules and rates of duty in the EU are quite different from those in China, Ross took issue with the "onerous and opaque procedures for registering and gaining certification for imports, unscientific sanitary rules, especially with regard to agricultural goods; requirements that companies build local factories; and forced technology transfers." He also mentioned both blocs as "bankroll(ing) their exports through grants, low-cost loans, energy subsi- dies, special value-added tax refunds, and below-market real-estate sales and leases, among other means." Yes, the rules in other countries are typically opaque and far less open and even-handed, but Ross overlooks the fact that the US has taken similar measures. The four most protected industries in the US are steel, autos and auto parts, textiles and wearing apparel, and footwear. For years, they were protected by high tariffs, quo- tas, and complicated rules of origin. They still enjoy a degree of protec- tionism today with complex rules of origin and even some high rates of duty. Only the quotas are gone. Ross is correct on another point: The World Trade Organization needs to change. "The WTO should protect free and fair trade among nations, not attack those trade remedies nec- essary to ensure a legal playing field," he wrote in the opinion piece. The challenge to getting any institution to change is, like so many other insti- tutions, domestic and international. The WTO operates as a democracy. As such, its 164 members each vote in their own self-interest, and that includes the US. Therefore, the question for Ross and the rest of the Trump administra- tion is: how are you going to convince WTO members to change? JOC Susan Kohn Ross is an international trade attorney with Mitchell Silberberg & Knupp in Los Angeles. Contact her at TRUMP'S POLICY ENIGMA Included in the UN resolution is a requirement to identify any vessels involved in evading prior UN sanctions.

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